Effects of Holding Bank Account and Assets after Bankruptcy

After the bankruptcy order, you may open a new bank or building society account, but you should let them know that you’re bankrupt it is up to the bank or building society to decide whether they will let you
operate a bank account, and they may impose conditions and limits. You must use common courtesy if given use of a new account. Overdrawing the account or bouncing a check would be in poor taste.

Many banks belong to service called ChexSystems. This companyprovides information on checking accounts to its members assisting them ismaking business decisions. If a member banks reported you as having an account that your account was closed for cause (ie: overdrawn multiple times resulting in losses), it will make it more difficult for you to open a new bank account. It is estimated that approximately 80% of all banks use ChexSystems to some degree. Information will remain on your record for five years.

Banks vary in regards to service after bankruptcy. You may findit difficult to open a new account. On the other hand, you may be ableto open a basic account or use your existing account after the bank has
contacted the official receiver.

After you’ve opened a new account there is no need to tell your official receiver or trustee unless you are asked for that information. The official receiver or trustee can claim the surplus amounts, via an
income payments order (IPO), or an income payment agreement (IPA), to pay your credits. Your trustee may apply to the court for an IPO which requires you to make contributions toward the bankruptcy debt from your income. However, one will not be made if it would leave you without enough income to meet reasonable domestic needs. As long as you comply with the agreement agreed upon with the trustee interference in your new account is unlikely.

One interesting solution to opening checking accounts after bankruptcy is to fund an IRA (many banks open for as little as $50). After a few weeks, you can try to open a checking account “as a customer of the bank.” This significantly increases your chances of being approved.

Another possible alternative is PayPal. You can open an account with a saving account. With PayPal, you can get a debit card to make everyday purchases easier and you have the ability to make payments through
e-mail accounts.

Life after bankruptcy will be difficult. It’s important to keep your accounts as up to date as possible or it could limit your ability to open new accounts for a few years after your file bankruptcy.

Pro and Cons of Bankruptcy

Filing for Bankruptcy is a very difficult decision. But the stress of having overwhelming debt is not necessarily a better option. This will be one of the hardest decisions you will have to make so be sure to seek out a professional froma non profit credit counseling service (this is a requirement before filing for either Chapter 7 or Chapter 13 Bankruptcy).
Bankruptcy is the quickest way to put your overwhelming debt behind you and afresh. If you are eligible for Chapter 7, the bankruptcy proceeding will be over very quickly.. If you’re young, you will still have many years after bankruptcy to re-establish your credit and build up assets. All collection, foreclosure and repossession actions will temporarily stop with the official filing of Bankruptcy. If bankruptcy is approved, foreclosure assets will be included in the bankruptcy and you will be allowed to make monthly payments. Bankruptcy is a good option if you don’t have many assets which will have to be surrendered. Most states allow you to keep your primary residence, your car and other essential assets to earn a living. While bankruptcy might be embarrassing for you, judges and attorneys have heard similar or worse stories. Creditors will be banned from commencing claims against you on debt included in the bankruptcy filing. Some people might think not having credit cards will make life difficult, but using credit instead of cash was probably one of the causes of bankruptcy.
Many people do their best to avoid the stigma of Bankruptcy. It’s often difficult to deal with bankruptcy as you could feel like a failure, you are unable to take care of your financial obligations. Your name will be in the court record and could be published in the newspaper.
You can only file for bankruptcy once every six years, so you will not have bankruptcy as a potential “escape hatch.” Your credit history will be ruined for up to the next 10 years which will make it difficult to get credit. Also, any loans you can obtain will be expensive since you will probably fall into the riskiest credit category, sub-prime.
Some debt cannot be included in the bankruptcy and will not be discharged. All of your non-exempt assets will be sold and the proceeds used to pay off your creditors. Some of your home furnishings will be exempt but you could be forced to sell sentimental items. You credit cards will be terminated and it will be difficult to be approved again for at least three years. Depending on your individual circumstances, bankruptcy could be a good way to get out from your debt, but there will be future consequences.

Chapter 11 Bankruptcy

A chapter 11 case begins with the filing of a petition with a bankruptcy court. A petition may be voluntary and filed by the debtor, or it may be an involuntary petition which is filed by the creditors.Normally, a written disclosure statement (a document which contains information concerning the assets,liabilities, and business affairs of the debtors) and a reorganization plan are filed with the court.

Chapter 11 is most often used to reorganize business, which may be a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the stockholders. In this case, the chapter 11 bankruptcy case of corporation does not put the personal assets of the stockholders at risk other than with the value of their investment in the company’s stock. A sole proprietorship (owner as debtor) does not have an identity separate and distant from its owners. Accordingly, a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors.

The U.S. trustee plays a major role in monitoring the progress of a chapter 11 case and supervising its administration. The trustee is responsible for monitoring the debtor in possession’s operation of the business and the submission of the operating reports and fees. Additionally, the trustee monitors applications for compensation and reimbursement by professionals, plans and disclosure statements filed with the court and creditors’ committees. The trustee also conducts a meeting of the creditors. The trustee will impose certain requirements on the debtor in possession concerning matters such as reporting its monthly income and operating expenses, establishing new bank accounts, and paying current employee withholding and other taxes. Though the role of the trustee seems extensive the medication usually develops smoothly.

The company’s stock may be affected if it is publicly traded. In such a case it is generally delisted from its primary stock exchange particularly if it was listed on the New York Stock Exchange, American Stock Exchange, or the NASDAQ. On the NASDAQ, the identifying fifth letter “Q” at the end of a stock symbol indicates the company is in bankruptcy.

Many stocks that are delisted quickly resume listing as over the counter stocks. In a majority of these cases, the Chapter 11 plan, when confirmed, terminates the shares of the company rendering shares as valueless.

Individuals may also file for Chapter 11 bankruptcy, but due to the complexity of the proceeding-, this option is rarely chosen by debtors who are eligible for Chapter 7 or Chapter 13 relief.

Understanding Federal Exemptions in Bankruptcy

The Bankruptcy laws are federal legislation enacted by Congress. These laws were updated as recently as October 2005. The revised law established a standard set of exempt property bankruptcy files can exclude from creditors. Congress allowed states to opt-out of those exemptions and create their own set of exemptions. Sixteen states allow their citizens to choose between the federal guidelines or the states guidelines. Those states that follow Congresses guidelines are:

Arkansas  New Mexico
Connecticut   Pennsylvania
District of Columbia  Rhode Island
Hawaii   South Carolina
Massachusetts  Washington
Michigan   Wisconsin
Minnesota   Vermont
New Jersey  Texas

When reviewing the various exemptions, the value of the asset refers to the present value of the asset or replacement value. Married couples are allowed to double the value if both are included in the bankruptcy proceedings.

Federal Exemptions [United States Bankruptcy Code 11 United States Code Sec. 522(d)]: include the following:

Primary Residence – Equity in our house including co-op or mobile home is exempt up to $17,450. If you can’t use your entire exemption, you can apply any remaining credit up to $8,725 to any other property. You can also use this exemption for a burial plot.

Pensions/Retirement Plans – Any ERISA-qualified pension plan benefits that is required for support.

Insurance – Disability payments, life insurance payments (for persons who depend on debtor), life insurance policy with value less than $9,300 in dividends or interest and life insurance contracts.

Public Benefits – Exempt from bankruptcy include Social Security and Veteran Benefits, Unemployment Compensation, Public assistance and compensation as a crime victims.

Personal Property including animal or pets, crops, personal clothing, books, household appliances, home furnishings, household goods, health aides (i.e.: wheelchair), Jewelry (valued to $1,150), musical instruments (up to $425 per item), motor vehicle (worth less than $2,775), recoveries from personal injury (up to $17,425 but excluding amounts designated for pain and suffering or financial loss) and wrongful death recoveries for person debtor depended on for support.

Miscellaneous Expenses – defined as Alimony payments received and child support required for support.

Tools of the Trade – Items required allowing you to continue to earn a living at your trade such as special or work related tools, implements, books, specific tools of trade with a total value up to $1,750.

Wildcard – In addition to the specific exemptions previously mention, you can use a special $925 exemption of any property.

If you’re in one of the sixteen states which recognize the Federal exemption statute, you can choose the more favorable exemption list. It’s also important to review states residency requirements for bankruptcy filing, since a neighboring states statute might be more advantageous for you.

Alternatives to Personal Bankruptcy

If you are in financial trouble, you might have a few alternatives
besides filing for bankruptcy.Your creditors would prefer that you don’t file for personal bankruptcy. Most are willing to work with you. Creditors do not want to write-off bad loans. If you choose to negotiate with your creditors, you can hire a professional negotiator, seek help from a non profit credit or
debt counseling service or informally contact your creditors yourself.

Most of the time, I would suggest using a non profit counseling service.They are staffed by trained professionals who know how to negotiate with collection departments. A paid professional might or might not work harder for you, but he will definitely cost you money, a luxury you probably can’t afford.

If your creditors are will to negotiate, they could be willing to accept a smaller cash payment to settle their claim against you. Their other option is to hold off collecting proceedings and accept smaller cash payments over an extended period of time. By this method, the creditor would eventually have the entire debt paid off.

A combination of the two methods is called Individual Voluntary Arrangement. You and your creditors agree to re-pay a percentage of the total loans over a set number of years. This time period is usually 5 – 7 years allowing for very small monthly payments.

If you still have a decent credit profile, you could have two additional alternatives to bankruptcy. You might be able to refinance your loans through a new mortgage or a home equity line of credit. The interest rates would be much lower than either personal loans or credit card interest rates and the interest could be tax deductible, leading to additional benefits.

Balance transfers are another alternative involving credit cards.In some cases you will be able to transfer your credit card loans from higher interest rates to lower ones. Be careful of introductory rates for relatively short time periods because you might not be able to transfer to lower rate cards again if your debt continues to climb. Also, the lowest rates are for the better individuals with good credit scores.Another disadvantage is introductory rates are lost if you are late or miss a payment.I would suggest Life of Loan rates so you don’t have to worry about high “Go To” rates after an introductory period.

An unexpected alternative to bankruptcy might be – Do Nothing. Some people are “Judgment Proof”. If you have a low income and little or no property, and don’t expect your financial situation to improve materially in the future, you could be “judgment proof.” If you get sued and lose, they winner won’t be able to collect because you don’t have any assets they can legally take. You cannot be thrown in jail for debt.

Creditors can’t take basic essentials such as basic clothing, ordinary household furnishings, food, or Social Security payments, unemployment insurance, or public assistance benefits. Your creditors won’t sue you; they’ll write off your debt and take the loss as a tax deduction. After seven years, the debt will not be included on your credit report.