John Ventura’s on a mission — a mission to inform consumers about their credit, debt and rights in a bankruptcy.
The director of the Texas Consumer Complaint Center at the Houston Law School (where he is an adjunct professor) is also a board-certified bankruptcy attorney with 30 years of experience. And, he is alarmed by what he sees going on inside out and out of bankruptcy court.
Since the change in the bankruptcy laws in 2005, Ventura said the number of bankruptcy filings has increased around 40 percent.
Before the bankrupt law changed, Ventura said bankruptcy attorneys would routinely help consumers for the cost of the filing fees plus $200. But the cost of filing for bankruptcy has skyrocketed as the new law became more complex. The net effect is that those who can least afford it must pay more to their lawyers to file the necessary papers.
Part of the problem is that consumers really don’t understand when they’re able to file or what will be discharged if they do go through a bankruptcy. Ventura, who is the author of an excellent new book called “The Bankruptcy Handbook: Everything You Need to Know to Avoid Bankruptcy, Get Rid of Debt, and Rebuild Your Credit,” says consumers are confused and scared by what they see as a last-ditch effort to get on the right side of their debt.
Consumers typically can file for two types of bankruptcy, Ventura explained: Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is a complete liquidation of debt. You can file for this kind of bankruptcy to discharge or wipe out most of your debt. A Chapter 13 bankruptcy helps you reorganize your debt. Consumers get three to five years to pay off most of their debts.
If you owe more than $336,970 in unsecured debt (like credit card debt), and more than $1 million in secured debt, you’ll have to file for a Chapter 11 reorganization. If you’re a farmer, you’ll file under Chapter 12 of the bankruptcy code.
Before you’re even allowed to file for bankruptcy, you’ll need to get a Certificate of Compliance, which essentially means you’ve gone through a prebankruptcy counseling session with a certified bankruptcy counselor. This will cost about $50, Ventura says.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) also requires you to go through a post-filing debtor education class while you’re in bankruptcy. This class will last two hours and cost up to $100, although you can ask the credit counseling agency to waive the fee.
While the new bankruptcy laws means that filing won’t solve all of your financial problems, it is the right move for many, Ventura says, especially those facing foreclosure.
He suggests you “run” to a bankruptcy attorney if you’re about to lose your home in a foreclosure, you believe that you are at risk for having your car repossessed, your creditors are threatening you with legal action, or the IRS is threatening to collect your past due federal taxes by garnishing your wages, putting a lien on one of your assets, intercepting your federal tax refund or taking some other action.
You should also file for bankruptcy if “your wages are already being garnished, and if your state’s Child Support enforcement Office is about to seize one of your assets, take money from your bank account, intercept your state or federal tax refund, or take some other action to collect your past due child support debt,” Ventura notes in his book.
The reason you should file for bankruptcy is that this legal action stops the clock on all of these actions. They won’t proceed until your bankruptcy has been discharged or the court gives that creditor the right to move forward to collect the debt. If you’re about to lose your home, Ventura says, filing for bankruptcy stops the lender from evicting you and taking the home.
There are other advantages to filing for bankruptcy. Your creditors will have to stop trying to collect from you (which should be a relief), although they may get some of their money through the bankruptcy itself. You may also be able to use the process of bankruptcy to reduce the total amount of money that you owe to some of your creditors.
Bankruptcy will wipe out the outstanding balances on some types of debt, although others, like school loans and IRS tax liens, will survive bankruptcy and you’ll still owe the full amount. And, bankruptcy may help you keep your car and house. (There is some talk about allowing bankruptcy judges to rewrite the terms of mortgage loans, possibly reducing the balance owed.)
But filing for bankruptcy isn’t always the right choice, even if you’re overwhelmed by debt. For example, if you have no assets, are over 65 years of age, aren’t working and are living on your Social Security benefits or cash withdrawn from a qualified retirement account (like an IRA), filing for bankruptcy protection won’t help.
Creditors can’t touch what is known as “protected assets,” including your car (up to a certain dollar value), many of your household goods and clothing, the tools you need to earn a living, and any money in your qualified retirement accounts (like 401(k)s, IRAs, SEP-IRAs, and Keoghs).
One thing is certain: Filing for bankruptcy will stain your credit history for a long time, up to 10 years. Your credit score will drop and you may have a very difficult time getting access to credit for the next few years. You may also have trouble getting a job, especially if that job is involves a company’s finances or money. Employers routinely pull a copy of a job applicant’s credit history.
And finally, your bankruptcy paperwork will become part of the public record, allowing anyone to peer inside your finances.
To find an approved bankruptcy counseling agency, go to the Department of Justice’s website.