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Can Bankruptcy Help?

At the Maryland Bankruptcy Center, we tell at least 1 person per day that they are NOT eligible to file bankruptcy or that bankruptcy is not a good idea. On the other hand, we tell most people who call that filing bankruptcy in Maryland is the right choice. Why is that? Chances are, if you are researching bankruptcy, you have found yourself in a very difficult financial situation and you are desperate for help. Chapter 7 and Chapter 13 are your last resort, but unfortunately in this economy, it is the only resort for hundreds of thousands of Marylanders each year. Consider the article below, and if you have any questions at all, feel free to call us anytime. Filing For Bankruptcy is a Major Decision. Necessary For Some, Unnecessary For Others… You don’t just throw a bankruptcy in your shopping cart and head for the check out, it’s a major life decision that should not be entered into lightly. In some cases, bankruptcy can really help. Some families who are avoiding filing for bankruptcy shouldn’t be, they could use the help. In other situations, filing for bankruptcy would be a big mistake. One of the themes we try to emphasize on this forum is that no two bankruptcy cases are identical. If I’ve said it once, I’ve said it a thousand times, filing for bankruptcy is much more than just filling out some forms. Debt relief at the federal level is powerful, complicated and unforgiving. It can offer tremendous relief when done the right way (see: why you need a bankruptcy lawyer). You pay a bankruptcy attorney to weigh all of the variables and to guide you through the process if you need it, or point you in another direction if you don’t. But I can hear the readers researching bankruptcy, at home, late at night, saying: “OK, we get that no two bankruptcy filings are the same, and that we need good representation, but can you answer the question please! Will bankruptcy help me?” Again, ultimately a question for a lawyer, not Google, but to begin your research, let’s roll up our sleeves and delve into some common debt scenarios and break it down. Can Bankruptcy Help With Credit Card Debt? A softball pitch to start. High interest credit card debt is one of the most common reasons folks file for bankruptcy. Bankruptcy can be a big help with your credit card bills. How? Assuming they were incurred in good faith, the bankruptcy discharge eliminates unsecured debts such as credit cards and medical bills. After you file for bankruptcy, your credit report should reflect zero balances on credit cards and lenders are permanently prevented from trying to collect. If they try, they can get in hot water with the bankruptcy judge. For more information, see: Credit Card Debt in Bankruptcy: The Basics. Can Bankruptcy Help With Collection Calls? Yes, we can check that box as well. Take some time to read up on the automatic stay, it’s a powerful injunction that stops all collection activity in its tracks the minute a bankruptcy case is filed. Once you seek bankruptcy protection, your creditors are prohibited from calling you. Even “friends” checking in on debts need to respect the bubble. Can Bankruptcy Help With Foreclosure? Not only does the automatic stay stop creditor phone calls, it stops all collection activity including lawsuits, garnishment and, yes, foreclosure. Bankruptcy and foreclosure is a complicated subject, but bankruptcy can help at least delay a foreclosure sale of your home. Chapter 7 bankruptcy is a faster process than chapter 13 bankruptcy. Most chapter 7 cases are open and shut within a six-month window. When you file bankruptcy (7 or 13), a court-ordered injunction, known as the automatic stay, prevents the bank from foreclosing on your home. This is true even if you file bankruptcy the day before the foreclosure sale is set to take place. That’s the good news, now on to the not so good news. Even after a bankruptcy case has commenced, and the almighty stay is in place, lenders can file what is known as a motion for relief from stay. The motion for relief allows them to continue with the foreclosure process even while your bankruptcy case is live. For a detailed breakdown of how bankruptcy can help stop foreclosure, see this post: Bankruptcy and Foreclosure: What You Need to Know. Can Bankruptcy Help My Spouse if I Don’t File? Potentially, yes it can. However the answer will hinge on whether your debts were incurred jointly or separately.Bankruptcy only eliminates the personal liability of the individual that actually files. If you and your spouse have incurred joint debt, she files and you don’t, you’ll still be on the hook for the debt. Conversely, if your spouse has incurred quite a bit of debt in her name and you haven’t, bankruptcy can help get you out of debt while preserving your credit. Can Bankruptcy Help With IRS and State Taxes? Yes, but only in limited circumstances. If your taxes have been due for at least three years and your returns were filed more than two years ago, your taxes are likely dischargeable in bankruptcy. If you don’t meet this criteria, you’re stuck with your tax debts even if you file bankruptcy. Keep in mind, your taxes are due in April of the next tax year. 2012 taxes aren’t technically due until April of 2013. The three year time period starts running from the due date. assuming no extensions have been filed, your 2012 taxes become dischargeable in April of 2016. The IRS wants to make sure they have a number of years to take a good crack at you before you’re allowed to wipe out the tax debts in bankruptcy. Can Bankruptcy Help With My Mortgage? Yes and No. On the one hand, filing for chapter 13 bankruptcy can help you save a home from foreclosure by forcing your lender to take past due mortgage payments in small increments over a 3-5 year period rather than forcing you to pay back what you owe in a lump sum right away. The all too common scenario unfolds a lot like this: a consumer falls behind on their mortgage and starts to get calls and letters from their lender. They then try to negotiate a modification or payment plan to get caught up. Unfortunately, in most cases the mortgage modification attempt fails after many months of haggling with “loss mitigation” bureaucrats or the bank demanding the arrearages in one lump sum. The consumer can’t afford to come current on their entire past due balance and eventually they lose their home to foreclosure. Chapter 13 bankruptcy changes the playing field by forcing lenders to accept past due mortgage payments in small increments over a period of 3-5 years which gives many families a realistic chance of getting caught up and saving their home. The past due mortgage payments are then added to the existing mortgage payment going forward. Although the ability to catch up on past due mortgage payments can be a big help for many families who are struggling to stay in their homes, it is important to remember that filing for bankruptcy doesn’t give you a free house. You’ll always need to maintain normal monthly mortgage payments if you wish to keep your home. Failure to pay the mortgage on time will almost always result in the lender seeking permission to foreclose. If, on the other hand, you’re one of the millions of Americans who find themselves underwater on their home values, and your mortgage has become a financial albatross that you can no longer afford to carry, filing for bankruptcy gives you the right to surrender the property and walk away with no liability for a deficiency judgment. At the Maryland Bankruptcy Center our lawyers have been helping Maryland file Chapter 7 and Chapter 13 bankruptcy for more than 20 years. For a free consultation, call us today at (410) 766-4044. David L. Ruben, Esquire

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