BIDaWIZ Blog » BANKRUPTCY QUESTIONS

When Should I File For Bankruptcy?

The BIDaWIZ Team — Thu, 03 May 2012 22:00:38 +0000

While personal bankruptcy rates are on the decline from a high of almost 1.6 million in 2010, there were still nearly 1.2 million individuals that filed for bankruptcy in 2012 (source: uscourts.gov). If you believe you’re on the brink of financial collapse, it is important to know when is the right time to file for bankruptcy.

Timing is critical
It is important to know when you should file for personal bankruptcy. Many individuals file too early and don’t exhaust all of their options. Others, wait until the very last minute which can cause even more financial problems.

Bankruptcy should be a borrower’s last option
You may think that you don’t have enough money to meet creditor demands, but a significant adjustment to your budget or downsizing to a small house or apartment could free up cash to settle outstanding debts. It’s also worthwhile to seek credit counseling and potentially work with a debt settlement company. But, make sure you choose a debt settlement company wisely, as there are many in the marketplace that charge large upfront fees and don’t actually help the debtor.

If your problem is credit card debt, then first speak with the lender about lowering your interest rate or propose a payment plan. The same goes for mortgages as there are many homeowner relief programs available with little to no tax consequences.

The point here, is that you should only file for personal bankruptcy if you absolutely have to because the financial consequences can be long lasting. Specifically, a bankruptcy filing can stay on your credit report for up to 10 years. But, that also doesn’t mean you will never be able to obtain credit again, as creditors and the government are more forgiving now then during past decades.

When is it too late to file for personal bankruptcy?
Technically, it is never too late to file for bankruptcy. But, if a creditor sues you for outstanding debts and a judgement is entered against you, a lien may attach to any real estate that you own and the previously unsecured creditor essentially becomes secured with a right to your property. If you filed for bankruptcy protection earlier, the automatic stay would have prohibited the creditor from taking any action against you without going through the bankruptcy court first.

More Questions? Ask your bankruptcy questions online.

Will My Credit Be Impacted If My Business Files For Bankruptcy?

The BIDaWIZ Team — Fri, 06 Apr 2012 13:00:57 +0000

While bankruptcy rates are on the decline from a high of almost 61,000 fillings in 2009, there were still nearly 50,000 businesses that failed in 2011 (source: uscourts.gov). If your business is on the brink of collapse, it is important to identify if your personal credit will be impacted by a bankruptcy filing.

Are you a sole proprietor?
If so, you and the business are the same and as such, you would need to file for personal bankruptcy. A sole proprietor owns the business assets but is also liable for its debts and therefore a filing for personal bankruptcy is the only way to clear the debts. The impact will be significant to your personal credit as it will show up on your credit report for at least a decade.

Are you a partner?
General partnerships are treated similarly to a sole proprietorship except the business assets are owned by the partnership and the entity in itself can file for bankruptcy. The catch is that the general partners are personally responsible for the business debts if liquidation of the partnership property doesn’t satisfy the debts. In addition, the creditor can and in most cases does report these debts to the credit bureaus under the partner’s name. The partnership bankruptcy wouldn’t appear on the partner’s credit report but their personal credit would be impacted albeit not as much as in a sole proprietorship.

Are you a member of a limited liability partnership, limited liability corporation, or corporation?
Those that incorporated as a corporation or limited partnership/corporation have by far the most personal protection against a bankruptcy. Under most circumstances, members and partners of these entities are not legally responsible for the business debts. The entities are separate from its members and can file for business bankruptcy. However, there are instances in which a member or partner could be tied to the business debts. Specifically, if any member or partner personally guarantees an outstanding debt, that individual will be liable when the business files for bankruptcy. The debt will be put on their credit report which has negative implications.

The other instance, is if the partners or members fail to withhold employment taxes or collect sales taxes from customers. Failure to pay these taxes can be considered an unpaid tax to the partners and members of the entity which will impact their personal credit.

More Questions? Ask your small business finance questions online.

Marrying Someone that Just Filed For Bankruptcy?

The BIDaWIZ Team — Thu, 15 Jul 2010 00:40:15 +0000

Well, that’s a good sign. You realize there may be consequences to marrying someone that just filed for bankruptcy & you are looking for answers. Not to mention you are probably very frustrated & are starting to question the engagement. But, let’s not jump to conclusions & right off your future spouse just yet.

Bad Things Can Happen
Sometimes people run into some bad luck. Such as a business venture gone sour or a tough job market as we’ve experienced with the great recession (i.e. 2008). But, this is not necessarily indicative of their future financial behavior and could actually be a great learning experience. With that said, let’s analyze the situation & highlight potential consequences for marrying a bankrupt spouse.

Situation 1: Your Were Misled
If your future spouse was hiding some key financial information from you that could potentially impact your ability to obtain credit, then it is reason to be concerned. Shear embarrassment may be the explanation you heard from them but that really is not acceptable. You need to be able to trust your spouse since you will be making investment decisions as a married couple which could impact your financial stability.

Situation 2: Bad Breaks Led to Bankruptcy & You Were in the Loop
Alternatively, if your future spouse filed for bankruptcy because they recently lost a job or had a few business deals that went sour, then it would not be such a reason for concern as long as they were upfront with you.

Discuss the Events that Led to Bankruptcy & The Plan
Whichever situation your are in with your future spouse, it would be wise to discuss the events that led up to the bankruptcy & the plan go forward to pay-down any existing debts & also to prevent this from happening again.

Consequences for Marrying Someone that Filed for Bankruptcy
It is no surprise to us that you may only want to know the consequences for marrying someone that filed for bankruptcy. So here it is. Generally speaking, you are not liable for the debts or the bankruptcy event that your spouse incurred PRIOR to marriage. Also, for the record, your liability is also limited even if you live in a community property state such as California which views the married couple’s property as shared evenly 50/50.

Since I’m Not Liable For Debts Prior Marriage, Am I in the Clear?
NO. Let us say that one more time – NO. After you get married, you should avoid setting up joint credit, checking & brokerage accounts as you will want to separate your credit & financial profile as much as possible until your spouse gets back on their feet. Why? Let’s say you have a strong credit profile with a 750+ credit score & no debt. You spouse on the other hand just filed for bankruptcy & has a sub 500 or 600 credit score. If you applying for a joint credit card account, the result will be that your own credit score will go down. This could in turn reduce your chances of obtaining a mortgage if you anticipate purchasing a home in the future.

When Can I Start Opening Joint Credit & Checking Accounts
The short answer is that when their credit & financial profile are closer or equivalent to yours. What does that mean? Their credit score should be near yours. They should have no debts or liens against them. They should be able to show a track record of increasing savings & financial responsibility. You and your spouse should be reviewing your finances at least on a monthly basis. After your spouse has fulfilled their bankruptcy requirements & has shown significant improvements in their credit standing, then it is the time to start thinking about applying for credit together for purchases.

More Finance Questions?