A bankruptcy lawyer can help allay your fears and confusions about the dizzying process of deciding whether to file for bankruptcy, as well as guide you through the process itself, making both less painful. You can contact their offices directly to ascertain the best course of action in your case. In the meantime, study more on your own about Chapter 7 bankruptcy, in order to better understand the process, and help yourself through this tough time.

The idea behind Chapter 7 bankruptcy is to relinquish the debtor of overburdening assets as well as debt in order to give the debtor a “fresh start.” This fresh start comes with some drawbacks, however. Most importantly, a bankruptcy remains on your credit report for nearly a decade. In Chapter 13 filing, the record is affect for seven years. Regardless of how long your credit is affect for each of the two bankruptcies, you will always be stuck with the fact that you filed for bankruptcy. This means that whenever you need a loan or a new job, and must fill out an application, you will have to state (if asked) against the threat of federal imprisonment, that you were at one point officially, legally bankrupt. For these serious reasons, as well as the fees involved and the lengthy meetings, assessments, and paperwork, you should think very hard on whether to file at all, and what your other options are. The lawyers at David B. Shaev can help you sort through this morass and decide what’s best for you.

More specifically, in a Chapter 7 bankruptcy a trustee “gathers” the debtor’s assets to sell them in order to pay back the creditors. Some of the debtor’s property may be claimed by other creditors through liens or mortgages, furthermore the Bankruptcy Code includes a list of exempt assets the debtor can keep, but the trustee will liquidate the rest. Therefore, Chapter 7 Bankruptcy means the debtor will most likely lose property.

Exemptions are different for different states as well as for the federal standards. The debtor has the power to choose whether to apply his or her state’s exemption guidelines or the federal guidelines. Choosing which is another boondoggle, and best made through the consultation of an attorney. Again, at David B. Shaev, one can receive a free consultation without any obligations.

Here’s a brief (non-exhaustive) list of what debtors usually have to forego in Chapter 7 bankruptcy:

• Any vehicles owned beyond one
• Investments, stock, bond, CDs, Savings
• Expensive Collections
• Family Heirlooms with resale value

Exempt assets, meaning property the debtor will be allowed to keep, include:

• Necessary items for the debtor’s livelihood, such as musical equipment for a professional musician or crafting supplies for a carpenter
• Necessary clothing, housing supplies, vehicles
• Medicare or Medicaid benefits, Social Security, or VA benefits
• Pensions

You should and will have many questions about filing for a Chapter 7 bankruptcy. It is not a decision to be made on your own. Call me for a no fees, obligation-free talk on what’s the right step for you on the road back to financial health.

The first mistake some debtors make is to liquidate all their monetary assets prior to filing. They may cash in an IRA, or a 401(k). Many don’t realize that in many cases, retirement assets are protected from bankruptcy, and by forfeiting them, you may give up your future security. Avoid this by considering bankruptcy before you resort to using any retirement funds.

Retirement funds may be exempt from bankruptcy liquidations

You may have to liquidate some monetary assets during a bankruptcy, but in general, retirement funds are safe from creditors during a bankruptcy. Don’t fall into this common mistake by withdrawing any retirement money before maturation.

Debt Management (without a lawyer’s help) may be a mistake

Debt management companies are often a big mistake for people who are unfamiliar with the bankruptcy process. Debt management companies may seek to profit off you by misleading you about the difficulty of handling your debt. Even worse, it’s not unheard of for debt companies to restructure your debt, and then take your money and never pay creditors. Act with extreme caution with these companies.

An experienced bankruptcy attorney can help you. Allow a knowledgeable attorney to work with both the debt management firm and your creditors if you decide to go with a debt management company. This will ensure that you protect yourself, and that the company actually follows through with the structured plan.

Keep transfers legal during the bankruptcy process

One common mistake that debtors declaring bankruptcy can make is in transfer fraud. It can be very tempting to give assets or valuable to friends to protect them from being seized during a bankruptcy, but this is against the law, and will likely be discovered. This kind of fraud also includes selling items far below their worth. Work with a bankruptcy lawyer when making any transactions to ensure that you do everything legally. Some kinds of transfers are acceptable, and it’s important to know which these are.

If you’re making a transfer in good faith, or through a normal business transaction, then you are protected from claims of fraud. If you are accused of fraudulent activity, however, your bankruptcy lawyer will be able to represent you to defend your case.

Beware Credit Scams

Credit card companies, banks, and predatory lenders may have had a hand in your financial woes. Work with your legal team to make sure that you’re not allowing these financial disasters wreck your chances of having a clean slate.

When considering your options, the first step is to determine whether you can pay down your debts with your current income.  If you can pay down your debts with your current income (or increase your current income), then debt settlement may be the best solution for you.  Next, you will need to determine whether you qualify for debt settlement.  To qualify for debt settlement, you will usually need to have at least $7,000 in unsecured debt.  It’s very important to ask each debt settlement company that you talk to about the minimum debt balance requirements.  Some companies have higher minimum requirements than others.

Choose debt settlement companies that have a strong history of negotiating with creditors.  Ask for references, and compare the services that each company offers. Check the company’s ratings with the Better Business Bureau.  Avoid debt settlement companies with negative ratings and lots of complaints.  If you decide to move forward with debt settlement, be prepared for the potential negatives.  Some potential negatives include: increased creditor phone calls, damaged credit, and possible collection lawsuits from creditors.  If you can’t handle these possibilities, then debt settlement probably isn’t the best choice for you.  Similarly, if you can’t pay off your current debt with your current income, then bankruptcy may be a better choice for you.

When considering bankruptcy, determine whether it will resolve your credit problems.  Depending on the amount and type of debt you have, a bankruptcy won’t always erase your responsibility to pay creditors.  From a cost standpoint, bankruptcy is usually more expensive than debt settlement.  And of course, bankruptcy is the darkest mark you can have on your credit score.  Compared to bankruptcy, debt settlement doesn’t affect your score to the same extent.  Talk with your attorney to determine whether bankruptcy or debt settlement is the right solution for you.

People who earn high annual incomes must complete a “means test” which requires detailed information about your income and expenses.  The results of the “means test” will determine whether you qualify to file Chapter 7 – or whether your annual income is too high.  If the means test shows that you have a certain amount of income left over that could be paid to unsecured creditors, then the bankruptcy court can decide that you cannot file Chapter 7.  The income cap is based on the median income in your state, your household size, and your total household income for the past 6 months (before filing).  All borrowers must qualify based on household income – even if you are filing alone.

You income will be calculated based on your average gross income (before taxes) for the last six months.  For qualification purposes, this excludes any benefits you earn under the Social Security Act.  Your spouse’s income (if you are married) is included – unless you complete separate tax returns and have declared separate households.  The state median income is calculated based on the Census figure for median personal gross income in your state.  You will use the Census figure with the same number of people in their household as you.

If your annual income is above the median state income for a household of your size, then you do not qualify to file for Chapter 7 bankruptcy. However, this calculation can be affected by different legal interpretations, such as whether unemployment compensation is a benefit under the Social Security Act.  Talk to an experienced bankruptcy attorney to determine whether your income is too high to file Chapter 7 bankruptcy.

Restricted eligibility for Chapter 7 bankruptcy is one of the biggest changes.  According to the new bankruptcy laws, the first step to determining whether you can file for Chapter 7 is to calculate your total monthly household income.  This figure must be compared against the median household income in your state.  If your household income is more than the state median, you must pass the “means test” before qualifying to file Chapter 7.

The “means test” is designed to determine whether you have enough disposable income (after deducting certain allowed expenses and debt payments) to make payments under a Chapter 13 bankruptcy plan.  To pass the means test, you must subtract certain allowed expenses and debt payments from your monthly income.  If the remaining income after this calculation is below a certain level, then you can file under Chapter 7.  If not, you will be required to file Chapter 13.

If you are planning to file Chapter 13, it’s unlikely that the new bankruptcy laws will prevent you from filing.  Very little has changed regarding the process for filing Chapter 13.  Another aspect of the new bankruptcy laws is the required credit counseling.  For both chapters of bankruptcy, all borrowers are required to undergo mandatory credit counseling before filing a bankruptcy petition. You are required to complete counseling even if a repayment plan isn’t possible for you.

During counseling, a repayment plan may be proposed – however, you are not obligated to follow the proposed plan.  You will, however, be required to submit the repayment plan to the bankruptcy court along with a certificate showing you completed the counseling.  The completion certificate must be submitted before you can file for bankruptcy.  Fortunately, the new bankruptcy laws do not require the credit counseling to be completed in person.  You are allowed to complete the mandatory credit counseling over the telephone or online.

Other good questions to ask a potential bankruptcy attorney include the following. “How many bankruptcy filings are business bankruptcy filings?”  Asking this question gives you a good idea of whether the potential attorney specializes in personal or business bankruptcy.  Some attorneys handle both consumer bankruptcy and corporate bankruptcy – meanwhile others handle only personal bankruptcies.  Another good question to ask is “Will I be working directly with you?”  If the attorney replies with a “no,” then it’s important to find out who you will be working with.  If possible, ask to meet this person.  You want to find out if you feel comfortable with the person you’ll be working with.

It’s important that you choose an attorney who specializes in bankruptcy.  You do not want to use a generic attorney who handles a wide variety of legal cases.  Be sure to ask for references if you have doubts about the attorney’s ability.  A good way of finding a qualified bankruptcy attorney is to ask for references from business owners, friends, and family who might be able to recommend a qualified attorney.  If you have a personal attorney, he can usually recommend an attorney who specializes in bankruptcy law.

When speaking with potential attorneys, find out what fees will be charged, and how often.  It’s usually a good idea to avoid hiring the cheapest attorney.  Choose an attorney whose fees are reasonable, but not too expensive.  If you are uncertain what price range is considered “reasonable,” consult your local bar association.  The bar association should be able to give you a reasonable price range for your local area.

If you are a veteran going through bankruptcy, you may be wondering whether your veteran’s benefits will be seized by creditors.  Typically, veteran’s benefits are exempt from seizure – both before and after you have received the benefits.

However, there are two exceptions.  The bankruptcy exception for veteran’s benefits does not apply when the benefits are spent on an investment that is defined as “permanent” under the bankruptcy code.  The second exception relates to child support payments.  Veteran’s benefits that have been received by the veteran can be seized if there is a court order for child support.

Let’s look at an example for the veteran’s benefit exemption as it relates to mandatory child support payments.  Let’s assume that David is a veteran who is filing for bankruptcy.  David receives $900 a month in veteran’s benefits; however there is a court order for child support payments.  Under the Texas bankruptcy code, David’s veteran’s benefits cannot be seized until they reach him.  Once David cashes the benefits check (or deposits it into a bank account), the money can be seized to satisfy child support payments.

A qualified retirement plan is a tax-deferred plan created by employers for their employees.  Plans that qualify include 401(k), 406(b), profit sharing plan, IRAs, SEP-IRAs, SIMPLE plans, money purchase plans, and defined benefit plans.  Depending on the type of debt you owe, the Texas retirement exemption may also apply to social security benefits. This exemption does not prohibit you from borrowing from your retirement plan and allowing a lien to be placed on your interest in the retirement plan (in order to secure a loan).

There is one caveat to the Texas retirement plan exemption.  It involves defaulting on a loan for which your retirement plan was used as collateral.  For example, let’s assume that you took out a home loan and used your retirement plan as collateral (security) for the loan.  If you default on the home loan, your retirement plan may not be allowed to serve as an exemption in your bankruptcy case.

Retirement plans for the following groups qualify for the Texas retirement exemption under both federal and Texas bankruptcy law: teachers, judges, police officers, municipal employees, elected officials & state employees.  Retirement plans for teachers, Texas County, Texas district employees, law enforcement officers, firefighters, and emergency medical personnel also qualify under both Federal and Texas bankruptcy law.

Food is classified as exempt personal property, and so are home furnishings (including family heirlooms).  Home furnishings include sofas, tables and other furniture.  Video recorders, electrical equipment, and cordless phones are not considered home furnishings and cannot be included in personal property exemptions.  Jewelry and unpaid commissions can also be claimed as personal property exemptions – however, both are limited to 25% of the total personal property exemptions ($30,000 for singles, $60,000 for families).

Clothing (anything you wear on your body, except for jewelry) is exempt under the Texas bankruptcy laws.  Household pets and certain life insurance policies can also be claimed as exemptions.  Tools of the trade are also exempt.  Tools of the trade are defined as anything you must use to conduct your profession.  For example, if you’re a landscaper, an expensive lawn mower may qualify under this exemption.  Two firearms are also allowed to be claimed as exemptions. Bikes, tennis rackets, baseballs, treadmills and other exercise equipment can be claimed as personal exemptions.  Only small personal equipment can be claimed under the sport equipment category.  This means that boats, and other sports equipment designed for multiple people do not qualify under as an allowed exemption.

Wages received for personal service are completely exempt, except when they are being seized for child support payments.  Self employed individuals are not protected under this exemption. Self employed wages will be treated as unpaid commissions and are included in the property subject to the exemption cap.  Self employed wages cannot exceed 25% of the cap.

Health aids are exempt with no cap on their value.  Health aids can include contact lenses, hearing aids, wheelchairs, glasses, and therapeutic equipment.  Farming and ranching vehicles can be claimed as exemptions.  Farm animals are also exempt (certain limits and conditions apply). Motor vehicles with 2, 3, or 4 wheels are also exempt. Only one motor vehicle exemption is allowed per family.  Even if a family member does not have a driver’s license yet, you may be able to get a vehicle to qualify if the family member depends on someone else to transport them in the vehicle.

If you qualify, the Texas homestead exemption has an unlimited dollar amount that can be excluded from bankruptcy.  If your homestead is located in a city, town, or village, the property cannot exceed 1 acre.  For property located outside of a city, town, or village, the exemption is limited to 200 acres per family.  To qualify, you must have lived in Texas for the past two years before filing for bankruptcy.

If you do not qualify for the Texas homestead exemption, you can use the federal homestead exemption which is limited to $125,000.  By law, you are required to use the federal homestead exemption if you purchased the property within 1215 days (3.3 years) prior to filing for bankruptcy.  You may also be forced to use the $125,000 federal limit if you are convicted of felony abuse of bankruptcy laws.  Likewise, the federal exemption limit will be imposed if the debts you owe were caused by racketeering, violating securities law, or intentional crimes that resulted in death or bodily injury in the past 5 years prior to filing for bankruptcy.

Even if you fall into a disqualifying category, you might be able to qualify for the Texas homestead exemption (the state exemption) if the property is deemed as “necessary for the support of the debtor and his dependents.”  It’s important to note that the bankruptcy court can reduce the value of your homestead exemption if it is determined that you added value to the property with the intent to delay, hinder, or defraud creditors during the 10-year period prior to filing for bankruptcy.