What Monthly Expenses Am I Allowed in Bankruptcy?

Before you sign your bankruptcy petition, you must review everything for accuracy.  One of the schedules, called “Schedule J – Current Expenditures of Individual Debtor(s)” is where your monthly expenses are listed.  Unfortunately, many people are unaware of what their monthly expenses are, and what is allowed.  A commonly asked question is, “What monthly expenses are allowed while in bankruptcy?”
Here are some personal monthly expenses that are allowed in bankruptcy: work expenses, ongoing legal fees, bank charges (monthly checking account fees, ATM fees), hair care and personal grooming products, annual tax return preparation fees, accounting fees, summer camp and summer activities, school lunches, sports fees, school uniforms, Christmas and birthday gifts, pet grooming and care, pet food, veterinary visits, oil changes for your car, cigarettes, car washes, and parking expenses.
Other allowable monthly expenses while in bankruptcy include: college expenses, home landscaping & lawn care, home alarm system and maintenance, annual registration cost for motor vehicles, postage, EZ Pass costs, OnStar system payments, vision care, doctor visits, dental visits, charitable donations, eyeglasses (care and replacement, including contact lenses and saline solution), home office supplies (including computer toner, ink, paper, and software), non-prescription medications, and shoe shines.  Additional allowable monthly expenses include: monthly website subscriptions, monthly magazine and newspaper subscriptions, antacids, gym/YMCA fees, toothpaste, tooth whiteners, brush and floss, pain killers, cold/sinus/allergy remedies, vitamins, weight loss programs and aids, books, and music lessons.
Some expenses are easy to determine and record – fixed expenses such as mortgage or rent payments, car payments, health insurance, child support, and cable.  Variable expenses are harder to determine since the payment amounts fluctuate.  These expenses include food, electric costs, gasoline, day care, and phone.  To determine your variable expenses, review the past year’s expenses and divide by 12 to calculate the average monthly cost.  Don’t forget to include periodic expenses, such as clothing, medical expenses, and insurance.

How do I know if bankruptcy is the best thing for me and my family?

Are you facing any of these obstacles?

• Are you heavily in debt with little prospect of getting out of that debt in the near future?
• Have you had, or are your creditors threatening foreclosure on your home or,  repossession of your car?
• Have you experienced a drop in income that you don't realisticly know when or how it will be replaced?
• Are you frequently late paying bills, incurring outrageous late fees?
• Do you only pay the minimum on your credit cards?
• Are you unable to make even the minimum payments?
• Has the interest on your credit cards been increased dramatically?
• Do you have to sacrifice basic necessities just to make ends meet?
• Are you paying more money than you make on just your monthly living expenses?
• Are you losing sleep at night wondering how you're going to make it?
• Have you bounced more than one check in the last two months?
• Are your wages in jeopardy of being garnished?
• Have you recently become disabled?
• Are you going through a divorce resulting in a decrease of income and an increase in expenses?

If you answered yes to any of these questions, help may be closer than you realize. Many people keep trying and trying to pay their bills even though they fall further and further behind. They simply do not know what else to do. Bankruptcy can put an end to garnishments, law suits, credit card debt, repossessions and more. 

Bankruptcy Fact Sheet

When You File Bankruptcy

You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):

Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.
Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
Chapter 12 – Like chapter 13, but it is only for family farmers and family fishermen.
Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.

If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.
Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.

What Is a Bankruptcy Discharge and How Does It Operate?

One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–

• most taxes;
• child support;
• alimony;
• most student loans;
• court fines and criminal restitution; and
• personal injury caused by driving drunk or under the influence of drugs.

The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.
It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.
You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.

What Is a Reaffirmation Agreement?

Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements–

• must be voluntary;
• must not place too heavy a burden on you or your family;
• must be in your best interest; and
• can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.

If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.
If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.

Elderly Americans lose $2.9 billion annually to financial abuse

Elderly Americans lose $2.9 billion annually to financial abuse

Personal Bankruptcy

If you're struggling to change your financial life, the first step is understanding the options. Learn how the personal bankruptcy protections in the U.S. Bankruptcy Code have helped people across the United States with credit card debt, pending home foreclosure or other urgent financial matters.

The U.S. Bankruptcy Code offers two different personal bankruptcy protections: Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 bankruptcy works to excuse, or discharge, unsecured debts. Unsecured debts may include credit card debt, medical bills, payday loans or other debts that are not tied to a specific item, like a home, car or boat.

Chapter 7 bankruptcy works through a "liquidation", or sale, of the debtor's non-exempt assets—but many Chapter 7 debtors find that all of their property is exempt and there is no liquidation.

On the other hand, Chapter 13 bankruptcy may help stop foreclosure or repossession through a 3-5 year repayment plan. The payment plan allows the breathing room to catch up secured debts over time while keeping most property.

Americans Struggling to Afford the Basics

A variety of factors have combined to put a new pinch on Americans, even as the economy is beginning to show signs of recovery, according to a number of news outlets. Here’s a look at the forces behind this new pinch and what it might mean for the typical American.

Prices Going Up

Fuel: We’ve already begun to see prices at the gas pump climb, and chances are it’s not a fluky trend that will reverse in the near future.

Food: Some food prices have already started increasing, but as shipping costs soar (because of more expensive fuel), those prices could climb even higher. As a sort of bonus bit of gloom, analysts are saying that chocolate prices are expected to leap upward in the coming months, thanks to political upheaval in the Ivory Coast (where 40 percent of the world’s cocoa beans are produced).

Apartments: As hiring picks back up in many industries, it seems that more people are deciding to sign leases rather than continue living with family members or friends. And others, the Wall Street Journal suggests, are upgrading as they feel more stable about their employment prospects. Naturally, this kind of movement en masse is likely to trigger higher prices in rental markets – in fact, some sources indicate that there’s a chance even middle- and upper-income Americans will find rent payments taxing in the coming years.

Houses: Another factor contributing to higher rental costs is that, despite moderate recovery in some areas of the economy, most people aren’t feeling secure enough to take on a long-term commitment like a mortgage. Other potential homebuyers may be waiting for the market to bottom out, and still others may feel that the expiration of the first-time homebuyer tax credit has left them with little motivation to buy. This wariness about buying could also be contributing to an increased demand (and thus a likely increase in prices) for apartments.

This combination of factors, according to reports, has left millions of Americans with housing costs at or above 50 percent of their household income. (Most financial advisers recommend that housing costs account for no more than 30 percent.)

With costs as high as they are, some families are left to choose between necessities: rent payments, credit card bills, food bills, utilities, medical costs, savings – when categories like this are in jeopardy, the potential for a financial disaster increases.

Is Bankruptcy an Option?

Between steadily climbing prices for necessities and continued insecurity in employment, it would be unsurprising if bankruptcy filings surge in coming months.

The good news here is that, despite the restrictions and new hurdles imposed by the 2005 law changes, most Americans who have found themselves in need of bankruptcy protection in the years since the law took effect have been able to get it.

What is Bankruptcy?

There are two main forms of personal bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy.


Chapter 7 Bankruptcy: The Debt Discharge

Chapter 7, the U.S.’s most common form of bankruptcy, is typically filed in a federal court when an individual or business facing a great deal of debt is unable to pay it.

A successful Chapter 7 bankruptcy results in the Chapter 7 debt discharge, which eliminates the filer’s unsecured debt, such as:

• credit card debt

• payday loans

• personal loans

• utility and medical bills

Keep in mind, a person must prove eligibility to file Chapter 7 bankruptcy.

In general, that means they must typically make less than their state’s minimum income level.




Chapter 13 Bankruptcy: The Wage Earner’s Repayment Plan

Chapter 13 bankruptcy, also known as the wage earner’s plan, is often an option suitable for those facing foreclosure or looking to reorganize finances within the confines of a court-approved, debt repayment plan.

Supervised by a federal court, Chapter 13 bankruptcy gives some income-receiving debtors the ability to:

• stop foreclosure

• silence creditors

• get on a more realistic, interest-free debt repayment plan

• possibly receive a discharge from unsecured debts

At the beginning of the Chapter 13 repayment period, which normally lasts three to five years, a court-appointed trustee is assigned to an individual case and thereupon acts as the go-between for the debtor and creditors.

The trustee receives a set monthly payment from the debtor to give back to creditors regularly or as specified in the court-ordered plan.

Exceptions to these payment types are current mortgage payments and some leases. At the completion of the plan, debts are usually discharged, or legally forgiven.

Once the discharge is entered by the court, no creditor who had notice of the bankruptcy can attempt to collect debt unless it is categorized as “non-dischargeable”, examples being some forms of criminal restitution, domestic support or student loans still not paid in full.

With every year that passes after filing bankruptcy, its record on a credit report is typically viewed with less scrutiny.

Welcome to the Bankruptcy Question Blog

If you have questions about bankruptcy and whether it might be a good solution for your financial situation, this is the blog or you.

Many questions about filing Chapter 7 are addressed in this blog.

Take a look at the blog titles and click on any that you find interesting.

If you have suggestions for new post topics, or, general questions that are not addressed here, post a comment to let me know.

Cathy Church

Path Is Sought for States to Escape Debt Burdens

By MARY WILLIAMS WALSH
Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

“All of a sudden, there’s a whole new risk factor,” said Paul S. Maco, a partner at the firm Vinson & Elkins who was head of the Securities and Exchange Commission’s Office of Municipal Securities during the Clinton administration.

For now, the fear of destabilizing the municipal bond market with the words “state bankruptcy” has proponents in Congress going about their work on tiptoe. No draft bill is in circulation yet, and no member of Congress has come forward as a sponsor, although Senator John Cornyn, a Texas Republican, asked the Federal Reserve chairman, Ben S. Bernanke, about the possiblity in a hearing this month.

House Republicans, and Senators from both parties, have taken an interest in the issue, with nudging from bankruptcy lawyers and a former House speaker, Newt Gingrich, who could be a Republican presidential candidate. It would be difficult to get a bill through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse.

Lawmakers might decide to stop short of a full-blown bankruptcy proposal and establish instead some sort of oversight panel for distressed states, akin to the Municipal Assistance Corporation, which helped New York City during its fiscal crisis of 1975.

Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers.

“They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”

Mr. Loveless said he was meeting with potential allies on Capitol Hill, making the point that certain states might indeed have financial problems, but public employees and their benefits were not the cause. The Center on Budget and Policy Priorities released a report on Thursday warning against a tendency to confuse the states’ immediate budget gaps with their long-term structural deficits.

“States have adequate tools and means to meet their obligations,” the report stated.

No state is known to want to declare bankruptcy, and some question the wisdom of offering them the ability to do so now, given the jitters in the normally staid municipal bond market.

Slightly more than $25 billion has flowed out of mutual funds that invest in muni bonds in the last two months, according to the Investment Company Institute. Many analysts say they consider a bond default by any state extremely unlikely, but they also say that when politicians take an interest in the bond market, surprises are apt to follow.

Mr. Maco said the mere introduction of a state bankruptcy bill could lead to “some kind of market penalty,” even if it never passed. That “penalty” might be higher borrowing costs for a state and downward pressure on the value of its bonds. Individual bondholders would not realize any losses unless they sold.

But institutional investors in municipal bonds, like insurance companies, are required to keep certain levels of capital. And they might retreat from additional investments. A deeply troubled state could eventually be priced out of the capital markets.

“The precipitating event at G.M. was they were out of cash and had no ability to raise the capital they needed,” said Harry J. Wilson, the lone Republican on President Obama’s special auto task force, which led G.M. and Chrysler through an unusual restructuring in bankruptcy, financed by the federal government.

Mr. Wilson, who ran an unsuccessful campaign for New York State comptroller last year, has said he believes that New York and some other states need some type of a financial restructuring.

He noted that G.M. was salvaged only through an administration-led effort that Congress initially resisted, with legislators voting against financial assistance to G.M. in late 2008.

“Now Congress is much more conservative,” he said. “A state shows up and wants cash, Congress says no, and it will probably be at the last minute and it’s a real problem. That’s what I’m concerned about.”

Discussion of a new bankruptcy option for the states appears to have taken off in November, after Mr. Gingrich gave a speech about the country’s big challenges, including government debt and an uncompetitive labor market.

“We just have to be honest and clear about this, and I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy,” he said.

A few weeks later, David A. Skeel, a law professor at the University of Pennsylvania, published an article, “Give States a Way to Go Bankrupt,” in The Weekly Standard. It said thorny constitutional questions were “easily addressed” by making sure states could not be forced into bankruptcy or that federal judges could usurp states’ lawmaking powers.

“I have never had anything I’ve written get as much attention as that piece,” said Mr. Skeel, who said he had since been contacted by Republicans and Democrats whom he declined to name.

Mr. Skeel said it was possible to envision how bankruptcy for states might work by looking at the existing law for local governments. Called Chapter 9, it gives distressed municipalities a period of debt-collection relief, which they can use to restructure their obligations with the help of a bankruptcy judge.

Unfunded pensions become unsecured debts in municipal bankruptcy and may be reduced. And the law makes it easier for a bankrupt city to tear up its labor contracts than for a bankrupt company, said James E. Spiotto, head of the bankruptcy practice at Chapman & Cutler in Chicago.

The biggest surprise may await the holders of a state’s general obligation bonds. Though widely considered the strongest credit of any government, they can be treated as unsecured credits, subject to reduction, under Chapter 9.

Mr. Spiotto said he thought bankruptcy court was not a good avenue for troubled states, and he has designed an alternative called the Public Pension Funding Authority. It would have mandatory jurisdiction over states that failed to provide sufficient funding to their workers’ pensions or that were diverting money from essential public services.

“I’ve talked to some people from Congress, and I’m going to talk to some more,” he said. “This effort to talk about Chapter 9, I’m worried about it. I don’t want the states to have to pay higher borrowing costs because of a panic that they might go bankrupt. I don’t think it’s the right thing at all. But it’s the beginning of a dialog.”

Banks repossess 1 million homes in 2010

by JANNA HERRON, AP Real Estate Writer

NEW YORK – The bleakest year in foreclosure crisis has only just begun.
Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and more will miss payments as they struggle with job losses and loans worth more than their home's value, industry analysts forecast.
"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc.
The outlook comes after banks repossessed more than 1 million homes in 2010, RealtyTrac said Thursday. That marked the highest annual tally of properties lost to foreclosure on records dating back to 2005.
One in 45 U.S. households received a foreclosure filing last year, or a record high of 2.9 million homes. That's up 1.67 percent from 2009.
For December, 257,747 U.S. homes received at least one foreclosure-related notice. That was the lowest monthly total in 30 months. The number of notices fell 1.8 percent from November and 26.3 percent from December 2009, RealtyTrac said.
The pace slowed in the final two months of 2010 as banks reviewed their foreclosure processes after allegations surfaced in September that evictions were handled improperly. Under increased scrutiny by the government, lenders temporarily halted taking actions against borrowers severely behind on their payments.
However, most banks have since resumed their eviction processes, and the first quarter will likely show a rebound in foreclosure activity, Sharga said.
Foreclosures are expected to remain elevated through the year as homeowners contend with stubbornly high unemployment, tougher credit standards for refinancing and falling home values. Sharga said he expects prices to dip another 5 percent nationally before finally bottoming out. The decline will push more borrowers underwater on their mortgages. Already, about one in five homeowners with a mortgage owe more than their home is worth.
The pain likely will be the most acute in states that have already been hit hard. That includes former housing boom states Nevada, Arizona, Florida and California, along with states that are suffering most from the economic downturn, including Michigan and Illinois.
Nevada posted the highest foreclosure rate in 2010 for the fourth straight year, despite a 5 percent decline in activity from the year before. One in every 11 households received a foreclosure filing last year in the state. In December, foreclosure activity increased 18 percent from November with a 71 percent spike in bank repossessions.
Arizona and California also showed sharp December increases in the number of homes banks took back, at 52 percent and 47 percent, respectively. Arizona, along with Florida, finished the year at No. 2 and No. 3 for the highest foreclosure rates.
One in every 17 Arizona households got a foreclosure filing last year, while one in 18 received a notice in Florida.
California, Utah, Georgia, Michigan, Idaho, Illinois and Colorado rounded out the top ten states with the highest foreclosure rates.
More than half of the country's foreclosure activity came out of five states in 2010: California, Florida, Arizona, Illinois and Michigan. Together, these states recorded almost 1.5 million households receiving a filing, despite year-over-year decreases in California, Florida and Arizona.
RealtyTrac tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.