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Rhode Island Bankruptcy Law: Myths vs Reality

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Who files bankruptcy in Rhode Island and why ?

Recent studies show that since 2008 the number of bankruptcies filed by those making more than $60,000 per year has increased by 6.9%. With filings up 36.5% from what they were this time last year, many blogs and commentators are labeling America’s current economic condition a recession for the middle class.  I can say that this is true for Rhode Island as well.

Many myths surround bankruptcy. One of these myths is that filing Chapter 7 is just an “escape route” for the financially irresponsible. Another is that filing Chapter 7 is only what truly poor people do.  These bankruptcy myths  , however, are easily refuted.

In fact, the economic recession has hit the Rhode Island real estate profession particularly hard. Today, more and more real estate developers and real estate agents are filing for bankruptcy protection due to the collapse of the housing bubble in the Ocean State.

Rhode Islanders have two basic bankruptcy options

Different kinds of bankruptcy exist for specific situations. For instance, Chapter 7 bankruptcy is usually filed by unemployed workers, or those whose income dropped due to loss of overtime.  Chapter 7 filers must show that their gross income during the prior 6 months is lower than the median income of other similar sized Rhode Island households. Although a Chapter 7 bankruptcy erases most debts, it limits the amount of property a debtor is entitled to keep.

Because the RI and Federal exemption laws protect a vast array of property, very few Chapter 7 debtors lose any property in the process.  Put your fears to rest by contacting a qualified Rhode Island attorney.  He will explain what property can be protected and what cannot.  In most cases, you will lose nothing.

If you have alot of property, and are unable to protect all of it in a Chapter 7 filing, a Rhode Island Chapter 13 bankruptcy allows you to pay equity above available exemptions to unsecured creditors. That way, you can keep your property if you can afford to do so. Chapter 13 creates a three to five-year payment plan for people who still earn a living (or have some regular source of income.) The payment plan consists mostly of secured debts such as car and mortgage payments. Also, unlike a Chapter 7 bankruptcy which requires up-front payment for attorney fees, Chapter 13 attorney fees can be part of the payment plan.

Debt-Settlement Scams and Tax Consequences

A word of warning to those considering debt-settlement firms instead of filing for bankruptcy: don’t. Although many debt-settlement companies pose as credit-saving alternatives to bankruptcy, most end up doing more harm to your credit than filing for bankruptcy would. This is because creditors will continue to report your missed payments to credit bureaus—even if you are in a “debt-settlement” program.

Also, settling debt for less than the full amount owed will trigger a 1099 statement reported to the IRS.  In other words, you are walking into a tax liability.  Interestingly, bankruptcy has shown to improve most client’s credit scores.  It does so by stopping negative reporting and immediately improving your debt to income ratio.

Another problem with debt settlement firms is that they are subject to very little regulation. Debt settlement firms demand payment up front before all debts are settled. This means they have little incentive to settle a debt completely after they have already been paid. In short, “debt settlement” is far from guaranteed. Compare this with bankruptcy, an organized legal process with pre-defined results.

Timing is key when considering filing bankruptcy in Rhode Island. You must be careful to not file bankruptcy too early or wait too long. Instead, start by calculating your debts and estimating what it would take to pay it off on your own. If the amount is too large, or would require you to sacrifice your family’s basic needs to make a dent in your debt load, then consult an experienced consumer bankruptcy attorney.

If you have missed even one mortgage payment, car payment, or credit card bill, you need advice now.  You don’t need to wait for your car to get repossessed or your mortgage to get foreclosed. Use your head, remain calm, and remember that bankruptcy is powerful and can restore order to a financial mess.

Filed Under: Blog Tagged With: Bankruptcy, bankruptcy filing, bankruptcy myths, business, Chapter 13, debt, debt settlement, debt settlement scam, file bankruptcy, finance, foreclosure, getting, help, insolvency law, Personal Finance, real estate, Rhode Island, Rhode Island bankruptcy law, Rhode Island Chapter 7, RI bankruptcy, RI bankruptcy lawyer, secured loan, title 11, united states bankruptcy law, united states code

RI Bankruptcy Law:Preparing to File a Chapter 7 Bankruptcy

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Bankruptcy is never anyone’s first choice.  But, if you live in Rhode Island and are drowning in debt, there are some simple steps you should take TODAY to prepare for the possibility of a Chapter 7 bankruptcy.  Here are just a few ways to make life less stressful for both of us.

Stop the insanity.  Do not use your credit cards anymore for anything . . . . including everyday living expenses.

  1. If we work together, I must know about every purchase made in the past 90 days.
  2. You should make no less than 3 payments after a major purchase, cash advance or balance transfer. Depending on your circumstances, I may advise making a few more payments, or waiting a few months before filing your case.
  3. Keep away from your 401k plans and other retirement accounts.  A recent distribution may jeopardize your case.
  4. Don’t get clever with your property.  You cannot take your name off of deeds to real estate, or other valuable property without causing major problems.
  5. Obtain your income tax records for the past two years.
  6. Gather copies of all pay-stubs for the prior 6 month period.  Continue to collect them going forward.
  7. Be private. Do not divulge your plans to any debt collector.  They may decide to go after your bank accounts now if they think you are filing bankruptcy next month.
  8. Keep paying on your house and car if you intend to keep this property.  You should try to get current on these obligations before filing your case.
  9. For homeowners, perform a title examination.  I need to know if there are judgment liens against any real estate.
  10. Don’t play favorites.  You should not pay more than $ 200 back to friends and family members in the past year.
  11. Be prepared to disclose all property that you may have any interest in.  Is your name on a parent’s bank account, or real estate?  Are you owed money by anyone for any reason?
  12. Request your free credit reports at http://www.annualcreditreport.com to identify all creditors.
  13. Start saving money for your Chapter 7 bankruptcy case.  Although I provide a free telephone consultation, I cannot file your case until all fees are paid in full.
  14. Call me TODAY with all of your questions.  I will give you my honest assessment, then you will understand what needs to be done to get out of debt once and for all.

Filed Under: Blog, Rhode Island, Rhode Island Chapter 7 Tagged With: Bankruptcy, bankruptcy abuse prevention and consumer protection act, business, cash advances, credit, credit cards, credit counseling, debt, file bankruptcy, finance, for a, insolvency law, Mark Buckley, Personal Finance, practical advice, prepare, preparing, real estate, reduce stress, reducing stress, Rhode Island, Rhode Island bankruptcy, Rhode Island Chapter 7, RI bankruptcy, title 11, united states code

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