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Louisville Bankruptcy Legal Blog

What is "credit counseling" in a Kentucky Chapter 7 bankruptcy?

A previous post here examined the basics of the "debtor education course" that all Chapter 7 bankruptcy filers must complete before receiving a discharge of their debts. At that time, we mentioned the fact that the course should not be conflated with "credit counseling," which is also mandatory, but is a different requirement entirely. Our readers need to know about credit counseling as it is under a Chapter 7 bankruptcy.

The first major difference between debtor education and credit counseling is timing. In almost all cases, the debtor will need to complete the credit counseling course prior to filing of the Chapter 7 petition. In fact, this requirement must be completed within the six months prior to the bankruptcy filing date. The course must be through an approved credit counseling agency, and can be done in-person, by phone or online. In order to avoid having a Chapter 7 bankruptcy petition dismissed, the debtor will have to file the certificate of completion provided by the credit counseling agency.

An "automatic stay" in Chapter 13 bankruptcy

Previous posts here have discussed some of the basic differences between filing a bankruptcy under Chapter 7 of the bankruptcy code and filing under Chapter 13. To refresh, Chapter 7 filings are often referred to as "liquidations," in which the debtor's property that is not exempt under the law is sold to pay off as much of the debt as possible. Chapter 13, on the other hand, is considered a "reorganization" and the debtor must have an income with which to submit a plan to pay back some portion of the debt in a three- or five-year time span.

One part of both bankruptcy procedures that is similar in Kentucky, however, is the concept of the "automatic stay." Once a bankruptcy petition is filed, all debt collection activity must stop until the bankruptcy cases goes through the court process. This means that phone calls, letters and other communications by the creditors or their agents should cease upon the filing of the bankruptcy. Further, if there is a foreclosure proceeding that has not been finalized, a Chapter 13 bankruptcy filing will cause that process to halt.

Stay open for business by filing Chapter 11 bankruptcy

There are many reasons for a business to struggle, even if it enjoyed years of success. A big box store could take customers away from a small retailer. A tornado could destroy a car dealership. A building contractor might have to shut down because of a divorce.

If an unforeseen problem is severely affecting your bottom line and you are spending sleepless nights wondering how your business will survive, perhaps filing Chapter 11 bankruptcy is the solution.

Business bankruptcy can be more complex than personal bankruptcy

Entrepreneurs in Kentucky are likely all too familiar with the risks involved in starting a business. Depending upon the industry, failure rates can be anywhere from half of all start-ups to 80 percent or more. In many cases, there may be nothing the business owners can do about it; factors beyond their control may be involved, such as a crash in demand, or closing of a preferred supplier causing a mountain of business debt. However, in certain cases, owners may see a way out of financial distress, if only the business were given the time to recover and strengthen some of its weak areas.

In cases like these, a Chapter 11 bankruptcy may be beneficial. Unlike a liquidation, where a business sells off its assets in order to pay some portion of what is owed to creditors, in a Chapter 11 "reorganization" bankruptcy the business will attempt to come up with a way to pay its debts over a certain period of time. To do this, the business owner must file a couple documents with the bankruptcy court.

What is the Kentucky Chapter 7 debtor education course?

Filing a Chapter 7 Bankruptcy is not an easy decision. There may be many reasons why Kentucky residents do not wish to file such a case, including the affect it may have on a person's credit rating and the perceived stigma that can sometimes be associated with such a filing. However, in many cases, the outcome of having debts discharged is worth the time and hassle, and other negative consequences that may result.

To receive that discharge, however, people filing for individual bankruptcy must complete a course of instruction in personal financial management, also called "debtor education." This course should not be confused with credit counseling, which is a distinct and separate requirement. While credit counseling is done beforehand in hopes of potentially coming up with a payment plan that can avoid the bankruptcy filing, the debtor education course is completed during the bankruptcy process and has the goal of teaching the debtor how to handle financial matters with an eye toward preventing a future need for the bankruptcy process.

Be aware of "SOLs" on credit card debt in Chapter 13 bankruptcy

Kentucky residents may be aware of the concept of Statutes of Limitations, also known as "SOLs," based upon common knowledge of criminal or civil legal concepts. In short, SOLs are restrictions that legislatures place on the time a person or the state has to pursue some legal action. The idea is that after a certain period of time, witnesses or evidence may no longer be available, and also that at some point the potential parties to an action need to have certainty that the matter is closed. Some people may be surprised to learn that SOLs may apply to certain bankruptcy cases as well.

SOLs most commonly come into play regarding credit card debt. Because most states, Kentucky included, put time restrictions on how long a creditor can wait to enforce an unpaid debt, some very old debts may end up being unenforceable. This often occurs when a debt has been sold to a collection company and that company has taken no action on it for a long period of time. This means that it is possible that when an individual declares bankruptcy, some of the debts owed may be unenforceable. A new U.S. Supreme Court decision, however, makes it clear that it is filers who need to beware of these zombie debts.

Chapter 7 bankruptcy is a viable option, but not the only option

The economic downturn 10 years ago did a lot of damage to many people's lives in Kentucky and around the world. Whether it was loss of retirement funds or the repossession of a home or vehicle, the experience has changed the way many individuals approach the ideas of wealth, income and bankruptcy. The hesitancy to use bankruptcy as an option to create a clean slate has eased over the past few years.

Of course, bankruptcy is not the only option for dealing with debts. Depending on the types and amount of debt owed, there may be ways to settle accounts, even for less than the total debt, without going through the legal process of bankruptcy. However, determining whether these options are feasible and more advisable than a bankruptcy proceeding may require some knowledge of the potential legal ramifications of each, as well as attention given to the individual's long-term goals. Whether the debts occurred due to divorce, job-loss, medical illness, or student loans, different paths may yield different results.

Pieces of "Taj Mahal" available in business bankruptcy sale

Kentucky residents are likely well aware that the current president previously ran a string of gambling establishments in various locations across the country. One such casino, marketed as the "Eighth Wonder of the World," has been in bankruptcy for some time now, and has finally been sold, with many of its contents sold off to the highest bidder.

The Taj Mahal Casino was sold to another casino company for about $50 million dollars. While that might seem like a huge some to most Kentucky residents, it is a paltry amount considering that the current president paid around $1.2 billion to open the casino. The sale means that the value of the property dropped to about 40 percent of what it was when it opened in 1990.

What circumstances have forced you to consider bankruptcy?

Bankruptcy may be a step you never thought you would have to take, but you need a solution to your mounting debt, and quickly, before the problem consumes you. It may help to know that you are just one of about 1.5 million people a year in the U.S. who file for bankruptcy. Your circumstances are probably similar to many of theirs.

Here are five of the most common reasons that people decide to settle their debt problems through this kind of court action:

What is the "means test" that applies to Chapter 7 bankruptcy?

Our readers know that not all bankruptcy cases in Kentucky are created equal. One major potential difference in bankruptcy cases is whether they are filed under Chapter 7 or Chapter 13. As we have touched on previously, Chapter 7 bankruptcy cases are "liquidations," while Chapter 13 bankruptcies are "reorganizations." What this means is that while in Chapter 7 the intent is to sell or "liquidate" any non-exempt property and distribute any proceeds to creditors, in a Chapter 13 proceeding a repayment plan is proposed and, if accepted, the debtor will pay that amount to the trustee for some length of time.

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