If you have been researching bankruptcy for any length of time, then you probably already know that counseling is required as part of the bankruptcy procedure. Before you can file, you will have to complete all government-required counseling programs. While this is not a difficulty for most people to complete, it may leave you wondering just why you need to go through this step.

The government added this requirement in the 2005 bankruptcy law. The goal was to ensure that those people who are filing bankruptcy have done what is necessary to ensure there are not other options. In other words, the government wanted to prevent repeated situations of people filing for bankruptcy when there was another valid option to consider. Through required counseling, some people are able to choose an alternative instead of opting for bankruptcy, but many were not choosing counseling because it was not required. The 2005 law changed this.

To make the most of your counseling, opt for a government-approved counseling agency. This will ensure that your counseling is accepted by the courts when you go to file. It will also help protect you from unscrupulous practices common in these fields from less ethical counselors.

If time is a concern, many of these counseling programs offer help over the phone. This will save you time and effort as you get the necessary counseling. Set aside an hour or so for the phone session, but with this option, you can complete your counseling without leaving home.

To make the most of your counseling, do not treat it as a means to the end of filing for bankruptcy. You may find that there is an alternative option to bankruptcy that will work for you. Take the counselor’s advice to heart, and consider any alternatives that might actually work for your situation. If bankruptcy is truly the best option, then this will be clear to you after the counseling session.

This pre-bankruptcy counseling needs to be complete before you begin the filing process. If you cannot afford the fee, then you need to request a fee waiver. This will allow you to waive the fee as you receive the counseling. If you do not qualify for the fee waiver, expect to pay about $50 for the counseling. All fees must be disclosed before counseling begins. At the end of the counseling, you must get a certificate from the agency to use as proof when you file bankruptcy. You will not be charged for this certificate if the counseling agency is operating under the current regulations. Avoid companies that charge for the certificate, as they may not be approved agencies.

There is also counseling required after you have filed and received a successful discharge. This takes more of your time but will help give you the tools to avoid problems in the future. Again, there is a fee, but you may be able to get a waiver.

In general, this counseling, while it may be a hassle, is for your benefit. Take it seriously, and it will help you get through the bankruptcy process with a better understanding of your financial future, and what you can do to prevent a future crisis.

People who are considering filing for bankruptcy often are left to wonder if this is something they should do. Drowning in debt is never fun, but neither is the thought of losing some of your belongings and assets to your creditors through the bankruptcy process. If you understand how this process works and what it can do for you, you will be better equipped to make the right decision. Here are some of the things you can accomplish if you opt to file bankruptcy.

Get Rid of Debt Obligation

Bankruptcy does not necessarily remove your debt, but it does remove your legal obligation to repay certain debts. This means that you can legally walk away from your debts without facing repercussions. It also means that the collections calls and other aspects of your debt are going to go away. While you technically still owe the debt, it will feel as though you do not.

Stop Foreclosure

Often, those facing debt problems also face an inability to pay their mortgages because of the overwhelming nature of their debts. If this is the case for you and you have fallen behind on your mortgage, filing for bankruptcy will stop foreclosure temporarily. Once you get the rest of your debt wiped away, you will be in a position to make those mortgage payments current so you can stay in your home.

Keep in mind that your mortgage is a secured debt. This means that bankruptcy can take away your obligation to pay the debt, but it does not take away the bank’s ability to repossess your home. Filing for bankruptcy will not ultimately stop foreclosure if you cannot make those mortgage payments current. The bank holds the lien on your home, and will take it if you cannot pay.

Stop Repossession of Your Car

Similarly, if your car is in danger of being repossessed, filing for bankruptcy puts a temporary stop to this. It may even give you the ability to get your car back after it has been repossessed. Like your mortgage, you will have to make your car payments current or work out some other form of agreement with the bank, but filing for bankruptcy could allow you to keep your car.

Turn the Heat Back On

If your financial woes have led to the disconnection of your utilities, then filing for bankruptcy may give you the ability to get the heat and other utilities turned back on. If you are in danger of having your utilities disconnected, then filing will prevent this action. You will be able to continue caring for those who live with you properly if this is a pending threat.

Stop Collection Actions

Perhaps one of the greatest benefits of filing for bankruptcy is the ability to put a stop to all collection actions. Letters, phone calls, garnishment, and other actions taken by debt collectors have to stop when you file for bankruptcy. The courts put this protection in place, even before your bankruptcy is granted, to give you a little breathing room while you figure out your next step.

If you find yourself in the market to file bankruptcy, there are certain things you are not going to want to do. These common mistakes, which may seem like a good idea at the time as you strive to protect your valuable assets, can actually make it impossible for you to file. If you are thinking bankruptcy may be in your future, avoid these common actions.

Offering Preferential Payments to Someone

Everyone who has struggled with debts understands that there are often “creditors” you are going to prefer over others. For instance, if you borrowed money from your parents to deal with a bill or debt crisis, you are going to be more motivated to pay them over your credit card company. While this may feel morally or ethically “right,” it is something the trustee is not going to appreciate, and it can backfire quite badly. The trustee can actually go after your friend or relative if those payments were made close to your filing for bankruptcy, demanding that they return the money.

Selling Assets to Get Out Of Debt

Sometimes before they consider bankruptcy, some consumers decide to try to sell some of their assets to get rid of their debt. This is not a bad idea, but you are going to need to carefully consider whether or not this is going to bring you enough money to get out of your debt problem without bankruptcy protection.

This mistake is not going to prevent you from filing for bankruptcy, but it may do little good. The types of assets you may attempt to sell, like your home or car, are also the types of assets that your state might leave as exemptions. This means that, in the end, you will still be in bankruptcy court and you will be without the assets that you probably could have protected.

Selling an Asset for Less Than Its Value

If you transfer an asset prior to filing for bankruptcy, you will have to disclose this fact. Selling an asset for far less than it is worth in the current market could give the bankruptcy court an inkling that you are trying to defraud your creditors by passing assets off to friends.

Before you sell an asset, make sure you talk to someone who is knowledgeable about bankruptcy law. Your asset may be an exempt item, or you may be guilty of fraud if you sell it the way you are intending then turn around and file for bankruptcy.

Taking on More Debt

If you know bankruptcy is pending, avoid taking on a bunch of debt. Maxing out your credit cards right before you file bankruptcy, especially for “vanity” purchases such as travel or other high end purchases, is a good way to get your case dismissed without a discharge. This is considered abuse or fraud and is not tolerated by most trustees. If you know or think that bankruptcy is coming, avoid making any unnecessary credit card purchases.

Considering bankruptcy during tax season brings an interesting question to debtors – what will happen to that big tax refund they are expecting to receive? Will it be consumed by the bankruptcy courts, or will they be able to use it as they attempt to start over financially? Here is what you need to know about your tax refund when you file bankruptcy.

Your tax refund is basically income that you paid to the government in anticipation of your tax liability. It was your income, and as such can be counted as such and is typically disclosed on your bankruptcy petition the same as other assets. If you fail to disclose your refund, then you are increasing your chances of having your case denied or dismissed. This is not a chance worth taking.

That said, you can take some steps to protect that money. These are typically considered completely legal and acceptable and not something that puts you in line for a denial of your claim. Of course, you may want to seek the help of an attorney or financial advisor before trying any of these, but most people will not have a problem if they use one of these methods.

One way to protect your refund is to choose the time you file carefully. If you file when you are not anticipating your refund coming, such as after tax season is over, then it may become a moot point. You will have your tax return itself to show your income, and the refund does not really factor into the equation. If you wait until after you have received and spent that refund, the courts are not going to bother with trying to reclaim it. It is not “pending income” and as such should not affect your filing, in most instances.

You can also adjust your tax withholdings a year or so prior to filing so that you do not end up with a refund the year that you file. Then, you will not have to worry about what to do with the refund when you file. Of course, this requires you to know ahead of time that you will be filing for bankruptcy, and some consumers do not know this information early in the process.

If your state offers a wildcard type exemption, then this could be used to apply to your pending refund. Not all states offer this type of exemption, so check to see if yours does.

Regardless of the way in which you try to protect your refund, you need to research the laws in your local jurisdiction. The rules surrounding this process vary tremendously from one location to the next, and it is not worth the potential of losing this valuable money if you make a mistake simply because you do not understand the rules that affect you. The way the trustees in various parts of the country handle these cases can be quite different, so make sure you find out before you start the process. Regardless of where you live, if you know a pending tax return is coming, you should disclose it, because failing to do so puts your entire case in jeopardy.

Bankruptcy mills are law firms and legal services that churn out bankruptcy after bankruptcy. They can be a good option for those who want a quick, affordable way to get help with their bankruptcy, but they are not without their risks. If you decide to go with a “mill,” make sure you are careful, because there are definite risks involved.

Bankruptcy mills can fit into one of two basic categories. Either they can be run by attorneys and handle a huge volume of cases, or they can be run by petition preparers who offer services at rock bottom prices, but do not have a lawyer available to help the clients. Those who do have lawyers on staff may not have their lawyers interacting with all clients.

The main draw of these types of places is the low cost associated with the bankruptcy. If you can file bankruptcy for a fraction of what it would cost using an attorney, yet still have the comfort that you are getting qualified legal help, then you may be tempted to use one of these services.

The problem is that the vast amount of volume these companies bring in could affect the quality of the service you receive. Sometimes, because they do not take the time to get to know their customer’s individual circumstances, they give poor advice. Frankly, bankruptcy is not a one-size-fits-all product. There are different circumstances and situations each individual debtor faces that could impact what is the best solution for their debt needs.

Also, some shady organizations like this were found to fail in filing the paperwork necessary for the bankruptcy. In other words, they took the client’s money, only to forget to file or to file too late. This led to foreclosures that could have been avoided, debt collection practices the debtor thought were under control, and other very serious problems for these debtors. In some instances, these bankruptcy mills gave advice that actually caused their clients’ cases to be dismissed, even when they had valid bankruptcy cases.

That said, not all “bankruptcy mills” or high-volume firms are bad. Some attorneys have streamlined the system so that they can effectively, and accurately, handle a large amount of bankruptcies, at an affordable price. Petition preparers can provide a valuable service to those who cannot access a computer or typewriter. It is up to the consumer to find out about a particular company, and ultimately it is up to the debtor to ensure that the paperwork and the rest of the process is being handled properly.

So, if you are interested in affordable legal help for your bankruptcy, you will want to do careful research to ensure you are not getting one of the shady ones. Talk to others who have filed, get references, and check with the Better Business Bureau or other review sites to get a good overview of the company you are considering, and only work with one of these high volume companies if they have a solid reputation. By taking the time to do this research, you are protecting yourself from a potentially dangerous situation.

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When you are filing for bankruptcy, one of the things you need to watch out for is bankruptcy fraud. If you are found guilty of providing false information to the courts, information that could alter the course of your bankruptcy case, then you could be considered guilty of fraud. Even if this false information is provided unintentionally, you are still liable for it.

This is a serious thing because of the stiff nature of the penalties. You could face jail time and hundreds of thousands of dollars in fines if the court proves you guilty of bankruptcy fraud. So it is important that you understand what it is and how to avoid it.

Often, people are found guilty of fraud when they try to shield some of their property from the courts as they enter the bankruptcy world. An example of this would be someone transferring his property to another person’s name right before filing for bankruptcy.

One place that some do not realize they can fall into the bankruptcy fraud trap is failing to mention income that you might be receiving in the future. This does not mean income from future potential jobs, but rather income from investments or other venues that you expect to receive sometime in the future.

What type of income might fall into these categories? You might find that savings accounts, deferred compensation retirement accounts, lump sum payments coming soon from your retirement accounts, and pending payments from previous employers for things like sick days or vacation days that you did not use are all considered assets when you file for bankruptcy. The list is seemingly endless, and this is why it can be so beneficial to work with a qualified attorney to help protect you from this. Of course, if you do not have assets like these, then it is not an issue for you.

This was recently seen in a case in Maine. In this case, a man filed for bankruptcy in 2006 and failed to disclose a series of retirement assets and pending payments from former employers. While some types of retirement funds are exempt, others are not, and he failed to disclose the types that are not. He ended up facing the potential of up to five years in jail and $250,000 in fines, if he is convicted of the charges brought before him. All of this happened because he did not mention some of his assets when he filed.

So what does this mean for someone who is considering filing? It simply means that you need to be certain you are disclosing all of your income and assets, even potential future income. If you are uncertain about what you need to disclose, take the time to research it for yourself. If you are not able to do this, then you may want to look into hiring a professional. Help is out there, and it is well worth the cost of hiring someone to help to avoid the costs of being found guilty of bankruptcy fraud.

If you have reached a point with your debt where you have no options, you may be wondering whether letting your home fall into foreclosure or going down the path of bankruptcy is the best option. You are the only one who can ultimately make this decision, but understanding the pros and cons of both options will help.

The Credit Impact

Both foreclosure and bankruptcy will impact your credit rating negatively. The amount of the negative impact is fairly similar. You are going to have a much lower credit score after either event, in most instances.

However, what really matters is how creditors view the event. If your creditors are going to take one look at your credit rating and decide that you are not a good risk, then you might want to avoid that action. If they are going to consider you an acceptable risk, then the option is far less damaging.

With foreclosure, you may find that you struggle to get another mortgage. Lenders are going to view you as a poor risk, simply because you let a home go in the past. This might make it harder to get a new loan.

Bankruptcy, on the other hand, does not show details on your credit history as to why you filed. Many lenders understand that unexpected events happen. Medical bills, the loss of a job, and other emergencies can make bankruptcy necessary even for the most responsible of borrowers. This means that bankruptcy may not impact your ability to get a loan for quite as long as foreclosure.

Keeping Your Home

Another consideration to make when facing these two options is how valuable your home is to you. With foreclosure, you have no ability to keep your home. Once the bank completes the foreclosure process, you must surrender your home to them.

Bankruptcy is another story. Most states have a homestead exemption that allows certain homeowners to keep their home, provided the equity is not above the exemption amount. If you are not behind on your bills, or if you can make an arrangement with your mortgage provider to get caught up on those bills, then you might be able to keep your home by filing for bankruptcy. You will need to maintain your mortgage payments, but the freedom you have from your other debts may free up enough money to allow you to do so.

Protection of Other Assets

If you have other assets in your estate that you want to protect, foreclosure may be a better option. Bankruptcy puts non-exempt assets at risk, so these could be sold to pay back your creditors. Of course, exemptions in many states are quite generous, so you might want to consult with an attorney before making a final decision.

In the end, you will need to decide what your goals are, and make the decision in line with these. Sometimes an attorney can help you outline your goals and come up with a workable solution, but you may be able to figure it out on your own as well. You are the only one who knows the answers to these questions, so you will need to be your best advocate when making this decision.

Chapter 11 bankruptcy protection is one way that a business can restructure itself after facing a debt problem. Like all types of bankruptcy, it has both positives and negatives that a business should consider. If your business is facing debt that you simply cannot deal with on your own, it is worth considering.

What It Is

Chapter 11 is the reorganization form of bankruptcy. It allows the business to stay open, but it requires the owner to start being accountable to the courts for the way the business was handled. The creditors also play a role in governing the business in Chapter 11. The bankruptcy also helps the businesses by cutting some of their debt. This gives the business some breathing room in which they can try to get back on their feet financially.

Downsides of Chapter 11

Chapter 11 can work well, but it is not the answer for all businesses. In order to succeed in Chapter 11, the business must be viable. You must be able to find and fix a problem that will prevent you from falling into the same difficulties again.

Chapter 11 bankruptcy is very expensive. It costs thousands of dollars to get the help you need from an attorney through this process. Not only that, but you have to pay the expenses of administering the case. Sometimes, this includes your creditors, who may not be on “your side.” So, you will be forced to pay the expenses of people who you may not trust or even like.

Finally, you will be subject to court supervision. This can be a downside, because it can mean that you are required to do things for or to your business that you do not want to do. For instance, you could be required to shut down low-performing branches of your business. This could go against your goals for your business, but you may have no choice in the matter.

Filing for Chapter 11 is a public event. Your customers, clients, and suppliers will know that you are in trouble. This could impact your bottom line for a while if trust becomes an issue.

Positives of Chapter 11

The main positive of Chapter 11 is the fact that you do not have to close your doors. You can continue running your business, only with a little “breathing room” for yourself. If you can be quite disciplined and work with good financial planners to help, you may be able to get your business back on track and out of the red with this bankruptcy option. Without it, your only choice may be liquidation if your circumstances have gotten bad enough.

So is Chapter 11 right for your business? You are, ultimately, the only one who can decide. You must take a good, hard look at your situation, your potential future, and your current goals, and determine if there is a chance of keeping your company financially stable as you work your way out of debt.

If you fear that bankruptcy is looming in your near future, there are some things you should (and should not) be doing as you wait for the chips to fall. Some actions you take in the months prior to filing can actually hurt your chances of successfully filing for bankruptcy. Other actions can put you in a better position. These five steps are important before you file.

Talk with an Attorney

Even if you eventually decide not to use an attorney, talking with one prior to filing for bankruptcy is a good idea. Most offer free consultations to help you understand why they would be beneficial to you, so this chat will not cost anything. Talking with an attorney can help you better prepare for the process and determine whether or not you really need one.

Prepare Your Papers

There is a lot of paperwork involved in bankruptcy, and you can begin preparing it long before you actually file. Organize your bills, taxes from the past few years, information about major assets, and other important pieces of paperwork so you can easily access it when the time comes. Most importantly, you need to have access to information about all of your debts, even those you have stopped paying on. The more complete and organized your paperwork is, the better off you will be in the long run.

Stop Charging It

At some point prior to filing for bankruptcy, the debts you incur will no longer be considered dischargeable. The courts do not want to see you racking up a bunch of debt just before you file. A creditor could easily object that you are trying to “work the system” and get a bunch of “free” stuff by charging it right before you file. That money you recently charged is going to be money you are responsible to pay.

Keep Up With Taxes

To qualify for Chapter 7 bankruptcy, you will need to be current on your most current year’s taxes. If you are not, you will not qualify for this form of bankruptcy. The trustee is going to request a copy of your return for the most current year. If you have not filed, you need to do so now, before you begin filing for bankruptcy. Even if it is past the deadline, you need to file in order to avoid having your bankruptcy case denied.

Do Not Make Ownership Changes

It is tempting to transfer the ownership of some valuable asset, such as your boat, in order to protect it during the bankruptcy process. After all, if it does not belong to you, it is not part of your estate, right? Actually, you need to discuss this with a bankruptcy professional first. Some transfers of ownership can be viewed as an attempt to “defraud” the courts and your creditors by “hiding” assets. Even if you legitimately want to sell an item, you should seek professional counsel before you do, because both you and the new owner could end up in trouble if you do so inappropriately.