The Personal Bankruptcy Answer Book: Practical Answers to More than 175 Questions on Bankruptcy

290 Pages·2009·2.96 MB·English

by  Wendell Schollander

THE
PERSONAL
BANKRUPTCY
ANSWERBOOK
Practical Answers to More than
175
Questions on Bankruptcy
WENDELL SCHOLLANDER, WES SCHOLLANDER, ATTORNEYS AT LAW
SPHINX® PUBLISHING
AN IMPRINT OF SOURCEBOOKS, INC.®
NAPERVILLE, ILLINOIS
www.SphinxLegal.com
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Copyright © 2009 by Wendell Schollander and Wes Schollander
Cover and internal design © 2009 by Sourcebooks, Inc.
Cover photo © iStockPhoto.com/DNY59
All rights reserved. No part of this book may be reproduced in any form or by any electronic
or mechanical means including information storage and retrieval systems—except in the case
of brief quotations embodied in critical articles or reviews—without permission in writing from
its publisher, Sourcebooks, Inc. Sourcebooks and the colophon are registered trademarks of
Sourcebooks, Inc. All brand names and product names used in this book are trademarks, regis-
tered trademarks, or trade names of their respective holders. Sourcebooks, Inc., is not associated
with any product or vendor in this book.
First Edition: 2009
Published by: Sphinx® Publishing, An Imprint of Sourcebooks, Inc.®
Naperville Office
P.O. Box 4410
Naperville, Illinois 60567-4410
[phone]
Fax: [phone]
www.sourcebooks.com
www.SphinxLegal.com
This publication is designed to provide accurate and authoritative information in regard to the
subject matter covered. It is sold with the understanding that the publisher is not engaged in
rendering legal, accounting, or other professional service. If legal advice or other expert assistance
is required, the services of a competent professional person should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the American Bar
Association and a Committee of Publishers and Associations
This product is not a substitute for legal advice.

Disclaimer required by Texas statutes.
Library of Congress Cataloging-in-Publication Data is on file with the publisher.
Printed and bound in the United States of America.
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Contents
Part I: Background Information
Section 1: The Economic Environment Today . . . . . . . . . . . . . . . 3
Section 2: The Effect on the Individual . . . . . . . . . . . . . . . . . . . . 9
Section 3: The Dangers of Past Due Debts and the
Collection Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4: Budgets for Hard Times and Bankruptcy . . . . . . . . . . 27
Section 5: Taking a Financial Inventory . . . . . . . . . . . . . . . . . . . 35
Section 6: Traps and Mistakes to Avoid When
You Have Money Problems . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7: What Will I Lose? . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8: Alternatives to Bankruptcy . . . . . . . . . . . . . . . . . . . . . 71
Section 9: Myths about Debt and Bankruptcy . . . . . . . . . . . . . . 81
Section 10: Overview of Bankruptcy and How It Works . . . . . . 95
Section 11: Consumer Bankruptcy Concepts . . . . . . . . . . . . . . 101
Section 12: The Dos and Don’ts of Filing for Bankruptcy . . . . 109
Part II: Types of Bankruptcy
Section 13: Chapter 7 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . 117
Section 14: Chapter 11 Bankruptcy . . . . . . . . . . . . . . . . . . . . . 127
Section 15: Chapter 13 Bankruptcy . . . . . . . . . . . . . . . . . . . . . 133
Section 16: Post-Filing Issues . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Section 17: Post-Filing Steps and Problems in Chapter 7 . . . . . 145
Section 18: Rebuilding Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 149
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Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Appendix A: Federal and State-Specific Bankruptcy
Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Appendix B: Consumer Credit Counseling Services . . . . . . . . . 209
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
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Part I:
Background Information
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Section 1
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■ Why do credit cards cause such big problems?
■ How did we get to this point with credit?
■ Why have interest rates caused such problems?
■ Why have bank fees become such a problem?
■ What is a subprime loan?
■ What are interest-only mortgage loans?
■ What is a balloon mortgage?
■ Is the general economic environment really worse today than it used to be?
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4 The Personal Bankruptcy Answer Book
Why do credit cards cause such big problems?
As long as you have not gone over your credit limit, credit cards
never say no to your request for a loan, and they are always there,
ready to play on your dreams, needs, and weaknesses, which is
where you can get into trouble if you’re not careful .
How did we get to this point with credit?
Credit cards are fairly new . The first general use credit card did not
appear until 1950, but credit cards did not take off until the mid- to
late 1960s . After that, credit cards grew and grew . Today it is hard
to live in America without using credit cards . But the problem is that
credit cards, in addition to making life easier, offer instant loans at
high interest rates . The charge for failing to pay off your charge at the
end of the month became a standard 1 .5% per month (18% per year) .
Banks found right away that many, if not most, people did not pay
off the charges each month, which meant credit cards were hugely
profitable to the issuer and a ticking time bomb to the borrower . If
a problem comes up where the minimum monthly payments cannot
be made, the individual has a ready-made heavy debt load .
People will take vacations, pay for private schooling for their chil-
dren, buy luxury cars, or redecorate their homes, and put it all on
their credit card . Normally, they have every intention of repaying
these charges, but it turns out to be more than they can afford . They
never could have gone into a bank and gotten a loan from a bank
officer for this spending . The credit card, as long as the limit has not
been passed, will happily supply the money .
Another use of credit cards we often see is a source of loans to
help people out in hard times . When a person for one reason or
another (e .g ., sickness, loss of job, layoff, injury) loses his or her
income, something must be done to replace these funds . Most fami-
lies have a little something set aside for such eventualities . However,
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The Economic Environment Today 5
no matter how many assets you have, if the income is cut off long
enough, you will run out of money . At this point there is a tempta-
tion to use the credit cards to tide you over until things get better .
Soon you have no income and a large debt .
Why have interest rates caused such problems?
At one time, in the period prior to World War II, the cost of
borrowing money was fairly low, in the 3%–6% range per year . This
was true for personal loans and for mortgages . Higher rates than this
were illegal in many states, and only loan sharks charged more .
When credit cards were developed, they charged higher interest,
but no one expected that anyone would carry a balance for several
months, let alone several years . But, as it turned out, many people
did carry balances for long periods of time, which meant a lot of
profit for the credit card companies—so much profit that over the
years they kept trying to get cards into the hands of more and more
people . In time, cards were given to college students who didn’t
have jobs and people with weak credit . To cover possible losses
from allowing people who had weak credit to use cards, the credit
card companies increased the range of interest rates that could be
charged . They also adopted policies of increasing interest rates on
individual card holders much faster than for slow pays or other
financial sins . Because defaults have stayed rather low over the years,
the policy of even higher interest rates on credit cards has resulted
in a financial windfall for the issuing banks .
Why have bank fees become such a problem?
Banks have to answer to shareholders, and shareholders want their
stocks to increase in value . Stocks increase in value when companies
make more money . At some point, banks can’t increase interest rates
on credit cards or find new people to issue high-interest credit cards
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