People file Bankruptcy as a way to escape debts when it may not be necessary. Always consider all of your options such as  Debt Negotiations  & Debt Management plans. Bankruptcy is final and will remain on your credit for 7 to 10 years depending on chapter filed. You can consider negotiating your debts which will have less impact on your credit. You should not attempt debt negotiations if you do not have adequate funds to pay a settlement or reduced payoff. If you have no income and you can not qualify for a debt management program, Bankruptcy may be a good option at that point.

The Bankruptcy Process
Federal courts have exclusive jurisdiction over bankruptcy cases. Bankruptcy cases cannot be filed in state court. Each of the 94 federal judicial districts handles bankruptcy matters. The primary purposes of the law of bankruptcy are: (1) to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and (2) to repay creditors in an orderly manner to the extent that the debtor has property available for payment. What is the automatic stay: Code 362 of the Bankruptcy code. It is an enforcement to disallow creditors at the attempt to collect certain debts (pre petition or possibly post petition debts) included in the bankruptcy. Basically it means any attempt to collect a debt involved in a bankruptcy can be a violation of the automatic stay or discharge injunction.

Debts That may not be dischargeable in a Bankruptcy:

• Child support or alimony.

• Student Loans unless court agrees it will cause undue hardship to
  the debtor or his family.

• Taxes unless they are over 3 years old or more.

• Fraud. You lied on an application or some type of fraud was involved. False financial statement etc.

• Debts not listed may not be dischargeable if the debtor was fully aware of them and did not list or notify creditor.

• Debts incurred to pay federal taxes.

• Credit cards used within 60 days for anything other then absolute necessities. This is a common mistake consumers make.

• Debts that were included in a previous bankruptcy that was dismissed within the preceding 180 days.

• Unexplained disappearance of assets.

• Abuse of the bankruptcy process.

• Other creditors can try to have your bankruptcy dismissed if they find you showed preference to other creditors over them.

Debts that are non-dischargeable generally fall into the following categories:

• Individual income taxes that are assessed within three years of the filing but remain unpaid.

• Debts that have been incurred by the use of false financial statements or by the use of other false pretenses.

• Unscheduled debts in other words, debts that the debtor failed to schedule as required at the start of the bankruptcy case.

• Debts that arise from fraud or embezzlement, or from the misuse of funds when the debtor was acting as a fiduciary. For example, embezzling money from a relative's trust fund over which the debtor had control.

• Alimony maintenance and child support.

• Any debt incurred from willful or malicious injury are generally non-dischargeable.

• Fines and penalties are non-dischargeable.

• Most educational loans cannot be discharged although a hardship exception allows a debtor to avoid certain educational loans.

• Debts for luxury goods or services over $1,000 incurred within 60 days of the court's order of relief. 

• Debts for cash advances in excess of $1,000 on Credit cards incurred within 60 days of the court's order of relief.

• Debts arising from a judgment incurred from drunk driving.

• Redeem: you pay balance in one lump sum to creditor

• Rescind: you give back the property to the creditor

• Reaffirm: make a new court approved contract and repay

You can make a voluntary repayment plan with a creditor without the courts approval as long as it is not considered preference. This may be beneficial to you because unlike the reaffirmation, you can stop paying at any time and the creditor cannot attempt to collect.  That is because it was solely voluntary and not a reaffirmation. If you plan on reaffirming, make sure you want This! Once the court approves it, it is considered a new debt! Creditors risk a lot by doing reaffirmation not approved by the courts. Sears was sued for 400 million over a 300.00 debt! all because they did not get court approved reaffirmation and then proceeded to collect when the debtor stopped paying.  Although most Debts can be discharged in a bankruptcy, certain debts are not dischargeable by individuals in a Chapter 7 liquidation. Other debts that are normally dischargeable may be denied a discharge, generally because of the actions of the debtor.

Cross Collateral Clauses
Many banks and Credit unions have enacted the CCC- Cross Collateral Clause. If you are subject to one it must be in your contract or terms and disclosures and be obviously displayed. A CCC is a clause that allows the creditor to secure your unsecured debts with other secured loans that the creditor may hold for you. A common use of this is if you have an auto loan and a line of credit or visa. While it does not stand up well against visa's because of regulation Z, it does stand up against most unsecured debts. That means if you file bankruptcy and think you are going to reaffirm the car, the creditor can also demand that you reaffirm the visa or they can literally hold your title hostage. This method however, can not be used with mortgages or the creditor will lose all future rights to offset the mortgage, should they attempt to offset payments by enforcing the CC clause.

Bankruptcy, Dismissal And Statutes Of Limitation: A Landmine For The Unwary

A recent opinion issued by the North Carolina Court of Appeals should serve to remind all creditors of the necessity of vigilance when a debtor is in bankruptcy. In Person Earth Movers, Inc. v. Buckland, N.C. App. , 525 S.E.2d 230 (2000), the Court reviewed a matter in which a contractor performed work which was billed in a lump sum in August, 1989. The bill was not paid and in March, 1992, the contractor filed a petition for bankruptcy seeking protection under Chapter 13 of the United States Bankruptcy Code. In his petition, the debtor, who disputed the amount owed, did not list Person Earth Movers as a creditor. Aware of the bankruptcy, Person Earth Movers went ahead and filed a Proof of Claim which was allowed by the Trustee.

Over the course of the bankruptcy, the Trustee made payments totaling approximately 10% of the debt. The debtor’s bankruptcy was dismissed in March, 1994 and Person Earth Movers filed a state court action to collect the debt in December, 1994. The trial court denied the debtor’s motion to dismiss the matter. The motion was based on the affirmative defense that the statute of limitations within which the action could be brought had run. After an award for Person Earth Movers, the debtor appealed, based upon the trial court’s denial of the motion to dismiss. The Court of Appeals agreed with the debtor and ordered that this matter be dismissed, i.e. no award for Person Earth Mover.

So, what does this mean for creditors? It means that a creditor has three years in which to bring an action on a contract, unless the contract is signed under seal. The clock starts ticking the date the contract is breached. If a debtor files for protection from the bankruptcy court, then the clock essentially stops ticking, a sort of suspended animation. The key is that if the debtor does not complete the bankruptcy and is dismissed, as opposed to having the debt discharged, then the clock instantly begins ticking again, at the precise point in time where it stopped. Using Person Earth Movers as an example, the breach occurred the day the bill was due and went unpaid (August, 1989). The clock ticked up to the date the bankruptcy was filed - the Court computed this as being two years and 267 days. Simple math tells us that 98 days remained on the clock at the time the bankruptcy was filed.

When the debtor’s bankruptcy was dismissed on March 4, 1994, the clock began to tick again. In mid-June, the statute of limitations, the time in which the creditor could bring the lawsuit expired. As noted earlier, the creditor did not bring the action until December 1, 1994. The primary argument the creditor raised in attempting to overcome the statute of limitations problem was that the payments made by the Trustee served to reaffirm the debt and start the statute of limitation clock again. The Court rejected this argument.

Reaffirmation requires a voluntary action by the debtor which essentially serves as an admission that the money is owed. The Court determined that the debtor has no control over what debts the Trustee decides to pay and therefore, the debtor cannot be said to have reaffirmed the debt. The Trustee is not an agent of the debtor. Therefore, there is no reaffirmation by the debtor and the statute of limitations is not re-started. The moral of this story is, “always monitor bankruptcies carefully and be very aware of the statutes of limitations”. It is not all that unusual for a Chapter 11 or Chapter 13 bankruptcy to be dismissed, so to preserve a claim, creditors must be vigilant in watching for notices of dismissal and know the difference between a “dismissal” and a “discharge”.