John M. Caher

Cheat Sheet / Updated 04-15-2022

Going through the process of filing personal bankruptcy isn't fun, but it’s sometimes necessary and can be a huge relief. Filing for personal bankruptcy means you have to answer some tough questions about your finances, consider your situation in light of the new bankruptcy law, figure out which bills to continue paying, and probably deal with debt collectors.

Article / Updated 03-26-2016

The founders of the United States foresaw that honest people might suffer severe economic misfortune or make poor choices. So, they provided for bankruptcy in the U.S. Constitution. Personal bankruptcies are covered mainly under two parts of the U.S. Bankruptcy Code: Chapter 7 liquidation: Chapter 7, commonly referred to as straight bankruptcy, is often what people mean or think of when they use or hear the term generically. In its simplest form, Chapter 7 wipes out most of your debts and, in return, you may have to surrender some of your property. Chapter 7 doesn’t include a repayment plan. Your debts are simply eliminated forever. If you buy a lottery ticket the day after filing and hit the jackpot, yippee! for you and tough beans for your creditors. Most property you receive after filing Chapter 7 doesn’t become part of your bankruptcy, but there are a few exceptions. Income tax refunds for prebankruptcy tax years go to pay your debts as well as divorce property awards, inheritances, and life insurance that you become entitled to receive within 180 days of bankruptcy. Theoretically, a debtor’s assets can be seized and sold for the benefit of creditors. All nonexempt assets owned on the petition date are fair game. But in practice, 96 percent of consumer bankruptcies are no-asset cases, meaning that no property is taken away from the debtor because it’s all exempt or worth so little that it’s not worth the trouble. To qualify for Chapter 7, if you earn more than the median income for your state, you’ll have to pass a new Means Test. Although the test is terrifically complicated, just about everyone can pass. The toughest part is just assembling the information you have to provide. Chapter 13 reorganization: Chapter 13 involves a repayment plan in which you pay all or part of your debts during a three- to five-year period. In a Chapter 13, you propose a debt repayment plan that requires court approval and thereafter keeps creditors at bay as long as you keep making payments A budget plan that demands frugality to the point of misery is doomed to fail. One that is reasonable has a good chance of succeeding. Every Chapter 13 plan must pass two tests: The best-interest test, which mandates that unsecured creditors be paid at least as much as they would receive if you filed a Chapter 7 instead of a Chapter 13. The best-efforts test, which requires that you pay all your disposable income (the amount left over after paying reasonable living expenses) to the trustee for at least the first 36 months of your plan. If your monthly income is more than the median for your state, allowable expenses will be based on Internal Revenue Collection Financial Standards, and the plan must run for five years. Otherwise, the amount of your payment will be based on your actual expenses, so long as they are reasonable. When you’re done, you’re done. Most creditors have gotten all they’re going to get. Life goes on. Other special kinds of bankruptcy exist. Chapter 11 bankruptcy is available to individuals but primarily is used for large business reorganizations. Chapter 12 bankruptcy, which is similar to Chapter 13 bankruptcy, addresses the unique problems faced by family farmers and family fishermen. As a practical matter, almost all consumer cases are covered under Chapter 7 or Chapter 13 of the code.

Article / Updated 03-26-2016

Discount and online brokerages have increased their customer service and added more servers so that customer trades are executed rapidly. Full-service brokers are increasing the capabilities of their Web sites and charging less for their services. The following are a few guidelines for selecting a broker that’s right for you: Full-service brokers: Full-service brokers usually charge higher commissions and fees than discount brokers, but they also offer more services. Full-service brokerages offer expert advice and good ideas that are helpful when the stock market is gyrating. Other services include ways of establishing personal financial profiles, estate planning, and tax advice. Discount and online brokers: If you know what you want, why not use a discount or online broker to purchase securities as inexpensively as you can? Full-service discount brokerages like Charles Schwab and TD Waterhouse have added a huge amount of advisory and account management services. The research available to account holders is staggering, but each firm currently charges hefty commissions for infrequent trades and a maintenance fee whenever your account balance falls below a certain minimum. In contrast, discount brokerage E*TRADE still offers trades with low commissions and few frills. Buying mutual funds: Mutual fund buyers have the choice of purchasing a fund through a broker or directly from the fund company. Many brokerages offer only a limited number of funds and may charge you a brokerage commission. However, if you buy a fund that’s owned and managed by your brokerage, the trading commission usually is waived. As a general rule, online investors who use discount brokerages aren’t seeking advice. They just want low-cost trades and excellent customer service. Individuals who are new to investing or online investing may want more of the bells and whistles of traditional brokerages. For example, premium discount (full-service) online brokerages may be a better match for infrequent traders, affluent investors, and individuals who want access to in-depth research resources and tools. The following is a list of some of the elements you may want to consider when evaluating an online brokerage. Account information: You want information about your cash balances, your order status, and your portfolio’s value. You also want a historical view of your trades and easy-to-understand statements for your taxes. Analytical and research tools: When offered by your online broker, real-time quotes, reports on insider trading, economic forecasts, company profiles, breaking news, and earnings forecasts are real timesavers and often cost savers, especially when your broker automatically sends end-of-the-day prices to you. Fees: Commission structures change radically from one broker to the next. One reason for the wide range is that some online brokerages include special or additional features for your cash account — for example, low or no fees for account maintenance, account closing fees, no IRA inactivity fees, or fees for retirement account maintenance. Securities traded: Ascertain which types of investments the broker enables you to trade, for example: stocks (foreign and domestic), options, bonds (corporate and agency), Treasury securities, zero-coupon bonds, certificates of deposit, precious metals, mutual funds, and unit investment trusts.

Article / Updated 03-26-2016

If filing for personal bankruptcy is on your radar, continue paying whatever bills you can to stay within the law. Prioritize bill payments with the help of this list: Rent (unless you plan to move) Utilities Car (if you want to keep it) Mortgage (if you want to keep your home) Fines Child support and spousal support Income taxes

Article / Updated 03-26-2016

If you're facing personal bankruptcy, you've probably heard from debt collectors. A debt collector's job is to get you to pay their client's debt, and they can be very inventive in finding ways to motivate you to do that. Debt collectors, however, are bound by laws, just as you are. What debt collectors can't do include the following: Call you early in the morning, late at night, or at any other unreasonable time or place. Harass you. Contact you at work if your employer prohibits personal calls. Threaten you. Tell anyone (other than your spouse, lawyer, or cosigner) that you're in debt. Bug you once you've told them to bug off. If a debt collector breaks the rules, you have options: First, tell them you know what the Fair Debt Collection Practices Act is and how to use it. Then, use it by filing a complaint with the Federal Trade Commission, Correspondence Branch, 600 Pennsylvania NW, Washington, D.C., 20580.

Article / Updated 03-26-2016

If you're thinking about personal bankruptcy, you're looking at some hard questions and harder choices, especially under the newest bankruptcy law. Answer the questions in the following list to figure out whether you should consider bankruptcy and what type: Can you pay off your debts (except mortgages) within three years while maintaining an objectively tolerable standard of living? YES: Congratulations! You're probably on fairly solid financial footing. NO: Consider bankruptcy. Depending on your circumstances, your options may be Chapter 7, in which many of your debts are forgiven immediately and you surrender nonexempt property (96 percent of filers don't lose any of their assets). Chapter 13, where you pay a portion of your debts over three to five years. Is your median income greater than the median income for your state? YES: Your repayment plan must run for five years if you go the Chapter 13 route. Your Chapter 7 may be dismissed if your debts are primarily consumer debts and you flunk the Means Test (see Step 5). NO: You automatically pass the Means Test. If you choose Chapter 13, your repayment plan can span only three years. The five-year repayment plan is not required (meaning that you're not get stuck committing all of your disposable income to a repayment plan for five years). Do you have nonexempt property that you want to keep? Do you need time to catch up on your mortgage? Do you owe taxes or support obligations that you want to pay off over time without being hassled? It varies by state, but generally homesteads, pensions, cars, and household goods are exempt. YES: Consider Chapter 13 bankruptcy. If your income is greater than the median, you have to pay for five years. Otherwise, a three-plan is an option. NO: Consider Chapter 7 bankruptcy. Are your debts primarily consumer debts and your income greater than the median? YES: Take the Means Test, outlined in Step 5. NO: Choose either Chapter 7 or Chapter 13 — whichever is more beneficial to you. See Chapter 4. Do you pass the Means Test? Deduct the following monthly expenses from your gross monthly income: IRS living, housing, and transportation expenses (excluding mortgage and car payments) Mandatory payroll deductions (taxes, FICA, and repayments on pension loan) and future support obligations Health insurance premiums Debt payments, such as regular mortgage and car payments, 1/60 of past due mortgage and car payments, and 1/60 of past due support obligations Is the difference between your monthly expenses and gross monthly income less than $100? (If the difference is more, proceed to Step 7.) YES: You pass the Means Test and may choose between Chapter 7 and Chapter 13. NO: You may be restricted to Chapter 13. Is the difference between your monthly expenses and gross monthly income between $100 and $166.66 per month and less than 25 percent of your unsecured nonpriority debts (regular obligations such as credit cards and medical bills divided by 60)? YES: You pass the Means Test. NO: You're limited to Chapter 13. Is the difference between your monthly expenses and gross monthly income more than $166.67 per month? YES: You're limited to Chapter 13. NO: Choose between Chapter 7 or Chapter 13 — whichever is more beneficial to you.

Article / Updated 03-26-2016

The bankruptcy law that went into effect in 2005 makes it harder than it used to be to declare personal bankruptcy. It's much more difficult to liquidate your assets and get a fresh start to your credit history. It also means that there's a slim chance (less than 3 percent) that you may not be eligible for bankruptcy. The newest bankruptcy law also lays out the following rules: Mandatory credit counseling within 180 days before filing bankruptcy Pay stubs received within 60 days prior to bankruptcy must be filed with the court. Creditors are entitled to a copy of most recent tax return Mandatory attendance at a financial management class after filing bankruptcy Increased attorney fees and court filing fees