Month: September 2016

Filing for bankruptcy can be a saving grace and vital step in helping businesses and families get back on their feet financially. Becoming bankrupt, however, is stigmatized in many ways. A large part of that stigma comes from how bankruptcy can affect credit. The fear of damaged credit or a credit report stamped with the implications of bankruptcy is often a strong deterrent for those considering filing for bankruptcy. Our attorneys at Behm Law Group, Ltd. provide legal advice and assistance to help you through the effects that bankruptcy in Mankato, MN, can have on your credit.

A bankruptcy filing can stay on your credit report for several years after filing. While a bankruptcy filing does impact your credit score, there are other factors to consider when it comes to bankruptcy and credit. A bankruptcy filing can actually be the starting point for rehabilitating your credit. To creditors, a bankruptcy filing is more a point of demarcation on your credit file. It shows creditors that before the bankruptcy filing your debt to equity ratio was skewed negatively such that the total of your debt far exceeded the value of your assets. It shows creditors that before the bankruptcy filing, your limited income was committed to and divided among many creditors. After a bankruptcy filing, your debt equity ratio will look much more favorable because the many creditors you had will no longer be relevant. New creditors will no longer have to compete with those old creditors with regard to your ability to make payments. After a bankruptcy, creditors know that they don’t have to compete with many creditors and that you can’t file for bankruptcy relief for several years. They are, therefore, more incentivized to work with you.

Chapter 7

Filing for Chapter 7 bankruptcy will essentially discharge all of your debts that are not exempt from the process, such as tax debt or child support debt, or denied based on situational grounds, such as debts that you may have incurred fraudulently. Chapter 7 will remain on your credit report for a maximum of ten years. This may seem hopeless with regard to increasing your credit, but, as related above, you will likely actually be more attractive to future creditors.

Chapter 13

Debts discharged during the Chapter 13 bankruptcy process are shown on your credit report no differently from Chapter 7. However, under the Fair Credit Reporting Act (FCRA), your creditors must denote those claims in such a way reflecting that you are no longer responsible for them. Your creditors must not list such claims as “past due” or “delinquent” or “account in collections” or “account assigned to legal”. Rather, they must list the claims as “account included in bankruptcy” or “account discharged in bankruptcy” or other similar language. If creditors fail to list the claims appropriately, a person can commence legal action against them under the FCRA.

Our consumerist culture, in combination with the demands of supporting a household or business, offers numerous opportunities to fall into debt. Credit cards, cars, and homes are common culprits that cause debt. What we frequently see in the clients that come to Behm Law Group Ltd. for legal advice and assistance with bankruptcy is a difficulty in distinguishing between types of debt. While all debt adds stress and financial obligations to your everyday life, the difference between good debt and bad debt could determine how you file for bankruptcy in Mankato, MN.

The normal debts that people acquire throughout their lives are generally categorized as “good” or “bad” debts. These types of debts are defined in simple terms, but are more complicated in the real world than they are on paper.

Good Debt:

Generally speaking, good debts are described as investments. Mortgages, student loans, business loans, and real estate loans are common examples of investment debts that have potential to increase in value over time. The concept of spending money to make money stems from the existence of investment-based debts.

For example, a mortgage may add to your financial responsibilities for several years, but in time, the value of the mortgaged property will increase and can be resold for a significant profit. Student loan debts are considered investments based on the idea that those with a degree statistically earn a greater income than those without.

Bad Debt:

The exponential growth in the use of credit-based payments as monetary value has continually increased cases of bad debt. Credit cards and store credit are common sources of consumer debt. Just as good debts are investments, bad debts are forms of divestment, meaning that from the moment they are obtained, they will consistently decrease in value and, very possibly, diminish the overall strength of one’s financial condition.

One example of a bad debt that almost every US citizen will handle throughout their lives is an auto loan. Even without a loan, cars themselves are almost always money pits that significantly depreciate over time. However, cars are also often a necessity of life, and there are many types of auto loans that are discharged in bankruptcy.

When filing for bankruptcy in Mankato, MN, the good and bad debts eligible for discharge will vary based on several factors. For legal help during your bankruptcy filing, contact Behm Law Group Ltd. at (507) 387-7200.

The Bankruptcy Code and the U.S. Bankruptcy Court can be very forgiving when it comes to the right debts and debtor. In the majority of cases, a debtor released from responsibility to debts (discharged from debts) is given a fresh start for building credit and a significant lightening of the demanded financial load. However, there are times when filing for bankruptcy is unadvisable given the type and circumstances of the debt in question. At Behm Law Group, our attorneys can guide and protect you when it comes to filing for bankruptcy in Mankato, MN.

For many individual filers and some businesses, Chapter 7 bankruptcy is often the most beneficial type of debt relief. Under Chapter 7, the debtor is released from all debts deemed dischargeable and the debtor’s assets (excluding allowable exemption claims such as homestead, vehicle and others) are distributed to creditors as debt repayment. In most cases, however, a person will be able to retain all of one’s property because the exemption allowances are very generous.

In some cases, filing for Chapter 7 bankruptcy is not beneficial to the debtor because the debts owed are non-dischargeable and could likely be denied for discharge.

Non-Dischargeable Debts:

Several types of debt are not recognized as dischargeable in U.S. Bankruptcy Courts. These include debts that obligate the debtor to the welfare of another person—for example alimony and child support debts or debts to the debtor’s employees. Similarly, debts for injury or death caused by alcohol consumption owed to another person are not discharged under Chapter 7. Educational debts such as student loans and several types of tax-related debts are also common types of non-dischargeable debts. However, student loans can be discharged if one is able to demonstrate “undue hardship” under 11 U.S.C. §523(a)(8). In order to do this, one must go beyond the initial bankruptcy filing and one must actually sue the student loan creditor and request the bankruptcy court to discharge the student loan debt. The burden of proof regarding “undue hardship” is on the person seeking to have the student loan debt discharged.

Denial of Discharge:

While debts that do not fall into the non-dischargeable category are approved under Chapter 7 for release from the debtor more often than not, there are times when debts are denied for discharge. These cases include those where the debtor has not kept accurate financial records, has committed a bankruptcy crime, has inaccurately explained assets or the loss thereof, or any cases where the debtor has committed fraud related to bankruptcy, assets, or debts. All that one has to do to have one’s debts discharged is to be honest and forthright with one’s bankruptcy attorney and list all of one’s assets and liabilities in one’s bankruptcy petition and related schedules.