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You walk into bankruptcy to get rid of your mortgage. You walk out still owning real estate. How’s that happen? It’s almost a joke – when does surrender not mean surrender? It’s not a funny joke, but one nonetheless. Here’s the tip: when you surrender property in Chapter 7 bankruptcy, you’re doing nothing more than indicating a willingness to let it go. You’re not actually handing it off to anyone. When you go through Chapter bankruptcy, you’re looking to discharge your obligations. In return, you’re surrendering your property that’s not considered exempt under the bankruptcy law. There is, however, nothing in the law that requires the bankruptcy trustee to take the property. Rather, the trustee’s goal is to liquidate and sell property that will yield a financial benefit to the creditors. If they look at something and doesn’t think it’s financially worth it to sell, then no liquidation occurs. In addition, discharging your personal obligation to repay the mortgage doesn’t mean the bank magically becomes the owner. Rather, the bank’s got to get title to the property either by foreclosure, deed-in-lieu of foreclosure, short sale, sheriff sale, or other legal means. Unless and until the bank takes action and takes back title to the house, however, it’s still legally yours. You’re not personally liable to the bank for any deficiency on the mortgage, but you do own the property. That means you’ve got to comply with all local laws regarding ownership. Keep the sidewalks clear of debris, trim the trees out front, and the like. If you get a citation after you bankruptcy is filed, you’re going to be on the hook for it. If we’re talking about a condo or house with a homeowners’ association then you’re going to remain liable for all post-bankruptcy HOA charges. Once again, this is still legally your place. In the end, it’s for you to realize the impact of your decision to surrender. Take the steps necessary to protect yourself, but also recognize that your liability for some things may not end until the deed is signed over.

Do you remember when 23andMe was the golden child of genetic testing? Millions swabbed their cheeks, eager to uncover ancestry secrets or health risks—until the hype faded, lawsuits piled up, and the company’s stock plummeted. Now, bankruptcy looms. If you’re a shareholder, you might be staring at your portfolio like it’s a pile of unopened collection letters: Maybe if I ignore it, the problem will vanish. But just like drowning in personal debt, corporate debt doesn’t disappear with wishful thinking. How Bankruptcy Could Modify 23andMe’s Future The moment 23andMe files for bankruptcy, the automatic stay kicks in. Here’s what changes: Lawsuits freeze. No more creditors or plaintiffs banging down the door. Operations continue. The company can restructure debts, renegotiate contracts, and (maybe) keep its labs running. Some debts dissolve. Shareholders might lose out, but survival could mean shedding unpayable obligations. Bankruptcy isn’t failure—it’s a reset button. Think of General Motors, Delta Airlines, or Marvel Comics. All filed. All lived to tell the tale. Pride “We’re a tech disruptor! We don’t do bankruptcy.” Sound familiar? It’s the same stubbornness that keeps individuals drowning in debt. But here’s the truth: Bankruptcy isn’t shameful. It’s a tool. Even Thomas Jefferson (post-presidency) and Kodak used it. The real failure? Waiting too long. By the time rationality wins, the company’s carcass might be picked clean. Should 23andMe liquidate its DNA database to pay creditors?

A 13 bankruptcy repayment plan does not necessarily mean that you must repay your debts in full. Don’t be scared off by a chapter 13 bankruptcy payment plan. It does not mean you have to pay everyone back in full with interest. After all, if you could afford to pay everyone back, you would not be thinking about filing a bankruptcy. It may mean you pay NOTHING to your general creditors, the ones without priority status or collateral. So, just how much do you have to pay back in chapter 13? The formula is simple, really. You must pay the higher of these four tests to your unsecured claims:   Administrative claims–Claims include the filing fee, trustees fee, and attorney’s fees. Priority claims–Claims include back child support and alimony and most federal and state taxes. Best efforts test–Your “disposable income” for 36 or 60 months as calculated by the bankruptcy means test formulas. Best interest of creditors test–Your creditors must receive as much as they would receive if you filed a chapter 7.   Do not let the myth that chapter 13 means paying back all your debts stop you from considering chapter 13. It is not true. Chapter 13 can be an powerful tool to manage and resolve your financial problems.

You may want to consider buying a car prior to filing your Chapter 13 bankruptcy case. Filing bankruptcy isn’t a matter of going to your bankruptcy lawyer’s office, plunking your money down, and signing a few documents. It involves planning. First, there’s the obvious need to determine what chapter you should file under-typically 7 or 13, but, in a few instances, it could even be 11. Second, you and your lawyer need to do some bankruptcy planning, and in this post I’ll discuss planning for Chapter 13 by buying a vehicle. Chapter 13 bankruptcy-if you’re over median income (using the six-month average prior to filing)-is a five-year process. If you’ve got an older car, you’re probably better off replacing it prior to filing. If it dies or begins “nickel and diming you to death” during your bankruptcy, you’ll need to file a motion to incur debt. You’ll have to make the case for needing that newer vehicle, and getting an order entered will take about a month. Buying a car will also help you on the means test, which determines how much you’ll need to pay to your unsecured creditors in your plan. No car note means no ownership allowance on the means test. That, in turn, means (pardon the pun) that you lose $517 on the means test. You must be mindful of how the purchase will look to the Chapter 13 trustee and, more importantly, the bankruptcy judge Am I saying you buy the car to do better on the means test? No. But if you need a car, it’s best to take care of that prior to filing. And if that helps you on the means test, well, so be it. Buy a high quality used car, and be sure you need to buy a vehicle. For example, if you have a 2008 model vehicle with 60,000 miles on it that you just paid off, I would not advise you to buy a newer car prior to filing. In contrast, however, if you owned a 2004 with 150,000, I would.

Payday loans can be dangerous forms of credit. Interest rates are astronomically high (according to an FDIC advisory, between 300 and 1000 percent when calculated annually), a significant number of payday loan customers take out multiple loans per year, and it’s difficult to determine a legitimate company from a fly-by-night business front. Many customers get trapped in a never ending cycle. By the time the loan comes due on the next payday (along with an additional $1.50 to $2 for every $10 borrowed), the customer can’t afford to repay the loan and pay his current bills. He then takes out another payday loan for just a bit more. When one loan company stops extending credit, the customer moves to the next, borrowing to pay off the first. Nothing about this sounds good or appealing, right? Typically, payday loans can be discharged in your Chapter 7 or 13 bankruptcy. But it just makes good sense to stay away from this scheme of lending in the first place. Don’t become one of the 12 million caught in a cycle of misery with these loans.

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as “liquidation” (Chapter 7) or “reorganization” (Chapters 13). Under a Chapter 7 bankruptcy, you ask the bankruptcy court to wipe out (discharge) the debts you owe. Under a Chapter 13 bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford. For more information, see What Is Bankruptcy? When you file either kind of bankruptcy, a court order called an “automatic stay” goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections. For more information, see How Bankruptcy Stops Your Creditors: The Automatic Stay. Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your Bankruptcy.

Bankruptcy can discharge income tax if certain conditions are met. One required condition is that returns must have been filed. Since tax law requires filing by a specific date, if not filed by that date any tax that is due will be exempt from discharge. The new language was added by congress in the Bankruptcy Abuse Prevention and Consumer Protection act of 2005 as a separate paragraph without numbering that reads as follows: “For purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law”. The process for involuntary assessment made by the IRS under IRC §6020(b) is commonly called “substitute for return”. Tax assessed in this way has long been considered exempt from discharge. The IRS will generally accept a return that has been prepared voluntarily by the taxpayer whenever it is filed. This is true even after the substitute for return process has resulted in an assessment. However, these delinquent voluntary returns, if filed after the involuntary IRS assessment, may reduce the amount of tax due but do not render the tax dischargeable in most federal circuits. Once the substitute for return process is complete, the situation cannot be reversed and the tax cannot be made dischargeable by a subsequent voluntary filing. It appears you can discharge tax due on a late filed return if you file a return before the IRS makes an involuntary assessment and the tax meets any other requirements for discharge of tax in bankruptcy.

A chapter 13 bankruptcy is a plan to re-organize a debtor’s liabilities and get a fresh start unburdened by mounting unsecured debt (credit cards, medical bills, etc.). Such a plan requires payments to a bankruptcy trustee. But how much are those payments? To a large degree the amount paid into the plan varies and depends on what is to be accomplished by the plan. Payments can include the mortgage on your house or a car payment. But, the most troublesome part of the calculation is determining what, if anything needs to be paid to unsecured creditors. The mathematics of this calculation can be complicated. The amount to be paid is the lesser of the amount that the creditors would have received in a Chapter 7 liquidation bankruptcy or the greater of the amount identified in the means test as “projected disposable income” or what it would take to pay off the unsecured creditors in full. Got it? The first step is to determine what the unsecured creditors would have received in a chapter 7 bankruptcy. That amount is, roughly, equal to the non-exempt value of the debtor’s assets less costs of administering that property. In many cases this will be nothing or close to it. Then take a look at whether or not there is any projected disposable income after doing the Means Test. This is the amount on the last line of the form, and is, theoretically, what is left at the end of each month after paying the mortgage, food, the car payment, and the rest of the living expenses. The debtor is expected to pay that each month to unsecured creditors. If that amount is not zero; multiply by 60 and compare it to the total amount of the unsecured debts. Pay the smaller of the two divided by 60 each month. But the actual amount to be paid each month into the Chapter 13 bankruptcy plan is the amount just calculated plus administrative costs and any other amounts to secured or priority creditors that are necessary to make the plan work (such as arrears on a mortgage, tax obligations or child support).    

After filing bankruptcy people are often interested in trying to rebuild their credit, and a Chapter 7 or Chapter 13 bankruptcy can be a good first step to repairing your credit. The information contained in your credit report is important and that information must be accurate. Credit reporting agencies (CRA) such as Experian, Equifax and Transunion are the gate keepers between you and potential lenders. In a world where credit is king, and credit ratings are used for decisions about whether a consumer can get a credit card, a car loan, or even insurance. That is why a recent report from the Federal Trade Commission (FTC) finding that the credit data collected by the three major credit reporting agencies (CRA), Experian, Equifax and Transunion, has an error rate of five percent. In the study, participants used the dispute process set forth in the Fair Credit Reporting Act (FCRA) to resolve errors in their credit report errors. The FTC study revealed the following: 1 in 4 consumers found errors on their credit reports; 1 in 5 consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed; 4 out of 5 consumers who filed disputes had some aspect of their credit report modified; About 1 in 10 consumers saw a change in their credit score after the CRAs modified their credit report; Approximately 1 in 20 consumers had a maximum score change of 25 points or more; and, 1 in 250 consumers had a maximum score change of more than 100 points. Errors on a credit report can have a major adverse impact on a consumer. Some of the known adverse effects are: Being rejected for credit Getting credit, but at less than favorable terms, such as a higher interest rate Being rejected for an apartment lease Being rejected for employment Being rejected for insurance or having to pay higher premiums for insurance Losing a security clearance Since your credit report is so important, you should review it from time to time, but it is not necessary to pay to review your report. The CRAs were required a number of years ago to set up a website where you can go to obtain a free credit report from each of the big three each year. This site is known as www.annualcreditreport.com. While you can get all three reports at once, you might want to consider getting one report from a different CRA every 4 months since all 3 credit reporting agencies generally have the same basic information. Also, remember that if you apply for credit and are rejected, you are entitled to receive a free credit report from the CRA that was used to deny credit.