Our Bankruptcy Attorney Blog

Although your credit report is used today for far more purposes than was originally envisaged, its primary purpose is to provide lenders with an overall view of an individual’s history of handling his or her debts. The basic idea is simple enough: a credit report points out how responsible an individual is when it comes to their personal finances. Do they pay their debts? Do they pay their debts in full? Do they pay their debts on time? If not, is the problem habitual or was it just a one time problem?

Virtually all lenders have to weigh the risk represented by the individual borrower against the amount of money to be charged for the loan. People with excellent credit pay less to borrow money because they represent less of a risk. At the same time, people with mediocre – or even very bad – credit can still be lent to, but will be expected to pay a lot more for the favour and will be expected to pay back the loan much faster than would otherwise be the case. The lenders offset the risk posed by a borrower by charging higher interest rates and demanding larger monthly payments than someone with sterling credit would be expected to pay.

In view of the above, obviously bankruptcy is almost the worst thing that could appear on a borrower’s credit report. Bankruptcy is turning to the court for protection from one’s creditors and in modern American society generally viewed as a public admission of one’s inability to meet their financial obligations. That is, to declare bankruptcy is not only the ultimate statement of an individual’s financial irresponsibility, but it is also an open declaration that they are willing to turn to the government – the bankruptcy courts – for assistance, which – obviously – all creditors view negatively.

Therefore it can come as no surprise that bankruptcy will almost automatically reduce an individual’s personal credit rating to the bottom of the barrel. Further, a bankruptcy stays on an individual’s credit report for a full ten years and will always been seen extremely negatively by lenders.

However, realistically, responsible borrowers can begin rebuilding their credit almost immediately after a bankruptcy agreement has been concluded (either after the debt discharge in Chapter 7 bankruptcy or the restructuring plan concludes for Chapter 13 bankruptcy). In fact, since debtors cannot file for a second bankruptcy until a full eight years has passed, many of the more predatory credit card companies immediately offer new credit to people filing for bankruptcy since they know if these people get themselves in trouble they have no further recourse to the courts. In fact, assuming the bankrupt person has kept their credit perfect since the bankruptcy, they can qualify for government backed mortgages and the like within two years.

Ultimately, the only thing worse than a personal bankruptcy that can appear on a personal credit report is criminal indictment in financial fraud and conviction (along with court ordered reparation and punitive payments). Nevertheless, it is not the end of the line and people that learn their lesson and behave responsibly after a bankruptcy can actually have fairly decent credit scores within a few years. Nevertheless, the bankruptcy will still be listed on their credit report and they will remain obligated to pay a lot more for almost any sort of loan than other people are expected to.

When filing bankruptcy there are many things that should be taken into consideration before doing so. This is why it is important to not wait until you are absolutelyIf  destitute to file for bankruptcy. Although most of the associated fees can be waived by the court, this becomes a whole legal process in its own right, before you can even file your basic petition for bankruptcy protection. On average, the normal amount that individuals spend to file for bankruptcy is between two and five thousand dollars. While all of this can be waived or avoided, the result is frequently a disaster for those that attempt to do so.

As a matter of law, before you are allowed to file for bankruptcy at all you have to receive credit counseling from a government-approved credit counseling agency 180 days or less from the date of the filing. These credit reporting agencies review your overall financial situation and determine whether or not bankruptcy is the right option for you. Assuming they decide that bankruptcy is a good option, they then issue you a certificate confirming that you received the counseling services. This certificate has to be filed with your bankruptcy petition and failure to do so guarantees that your petition will be flatly rejected from the outset. Although most of these credit counseling agencies are non-profits, most of them still charge basic fees for the review and for the certificate, and obviously these fees have to be paid up front.

After you have your certificate, you have to keep in mind that the bankruptcy process itself has a flat fee: $299 for a Chapter 7 filing or $274 for a Chapter 13 filing. Technically speaking, these fees can be waived by the court under the forma pauperis process, but this involves filing a separate set of forms and being able to document the claims contained therein. Further, generally speaking the courts rarely waive the fees altogether. Most of the time the court will simply impose a payment plan that allows the petitioner to pay the filing fee over installments instead of all at once. Even when the court decides to waive the fees, frequently it will only waive a portion of them, not all of them. Today, it is exceedingly rare to see anyone have all of their fees waived by the court.

Finally there is the big question of whether or not to hire a bankruptcy attorney to represent you. Debtors are allowed to represent themselves and present their petition to the court pro se, but this is almost always a bad idea. Quite simply, bankruptcy law is extremely complex and the courts are exceedingly bureaucratic, meaning that everything has to be filed properly or the whole case is simply denied and thrown out. Further, there are now restrictions on when a person can re-file their case if they have had a previous one thrown out for some technical reason. If you literally own absolutely nothing and have no real hope of acquiring anything in the foreseeable future, a pro se case may be worth the effort. Anyone that owns property, especially complicated property like real estate, should seriously consider hiring a bankruptcy attorney. Failure to do so can result in either failing to get the full benefit of the bankruptcy (despite getting the full downside) or can even result in a total financial disaster.

Bankruptcy Lawyers are going to have a new world to work with after the passage of this new Obama Foreclosure Prevention Program. Bankruptcy lawyers will now have the ability to “cram down” or modify loan balances for people going through bankruptcy. This will be a huge stick to try and force mortgage servicers to enter into loan modification agreements with loan owners. There is also a strong incentive program for lenders as they will get $1,000 per successful loan modification and then $1,000 a year to keep these people in their loans and in their homes.

More will come out about this in the next few weeks and the practical application will be interesting to watch unfold. Some judges may take this to the extreme and cut loan principal balances in 1/2 while others stick with tried and true measures like modifying interest rates and loan terms.

The news that Circuit City is declaring bankruptcy is quite a shocker. I knew that retail sales were going to suffer mightily in October, just wasn’t expecting this to happen quite so fast. The retail chains that can make it through the next year or so will come out on the other side that much stronger for it, but it’s going to be painful in the process.

I also saw where DHL is shutting down a big plant in Ohio and it’s going to cripple the small town that almost solely depends on the employment from DHL. I also think about Michigan and the auto manufacturers, as they get closer and closer to making massive layoffs, Michigan’s unemployment rate may rise up above 10% which is getting into dangerous territory (if it’s not there already). Hopefully the American consumer can get a little bit of energy back and start buying within their limits – at least low gas prices are saving people money at the pump.

News from BankruptcyData.com

MPC Corporation and eight affiliated Debtors, including Gateway Companies, filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware. The Company–whose primary business is providing PC-based products and services to mid-sized businesses, government agencies and education organizations–is represented by Richard A. Robinson of Reed Smith. According to documents filed with the Court, the Company’s largest unsecured creditor is Flextronics Logistics USA, which is owed $25 million.
On October 27, 2008, the Company was notified by the NYSE Alternext US of the exchange’s intention to strike the common stock and warrants of MPC from the exchange. Previously, on May 8, 2008, the American Stock Exchange had notified MPC that the Company was not in compliance with Section 1003(a) (i) of the AMEX Company Guide, in that the Company’s stockholder equity had fallen below $2 million dollars and that MPC had sustained losses from continuing operations or net losses in two of its three most recent fiscal years. MPC responded by submitting a plan for achieving compliance, which was accepted by AMEX on June 27, 2008. At that time, MPC was granted an extension until November 9, 2009 to regain compliance with listing standards, subject to periodic review of progress. The October 27, 2008 decision by NYSE Alternext US (which acquired AMEX on October 1, 2008) to file the delisting application was based on its review of publicly available information as well as information provided by MPC. In a letter to MPC, the exchange cited the Company’s failure to make progress consistent with its submitted plan, further citing that the plan no longer demonstrated MPC’s ability to regain compliance under Section 1003(a) (i) of the Company Guide.