Bankruptcy mills are law firms and legal services that churn out bankruptcy after bankruptcy. They can be a good option for those who want a quick, affordable way to get help with their bankruptcy, but they are not without their risks. If you decide to go with a “mill,” make sure you are careful, because there are definite risks involved.

Bankruptcy mills can fit into one of two basic categories. Either they can be run by attorneys and handle a huge volume of cases, or they can be run by petition preparers who offer services at rock bottom prices, but do not have a lawyer available to help the clients. Those who do have lawyers on staff may not have their lawyers interacting with all clients.

The main draw of these types of places is the low cost associated with the bankruptcy. If you can file bankruptcy for a fraction of what it would cost using an attorney, yet still have the comfort that you are getting qualified legal help, then you may be tempted to use one of these services.

The problem is that the vast amount of volume these companies bring in could affect the quality of the service you receive. Sometimes, because they do not take the time to get to know their customer’s individual circumstances, they give poor advice. Frankly, bankruptcy is not a one-size-fits-all product. There are different circumstances and situations each individual debtor faces that could impact what is the best solution for their debt needs.

Also, some shady organizations like this were found to fail in filing the paperwork necessary for the bankruptcy. In other words, they took the client’s money, only to forget to file or to file too late. This led to foreclosures that could have been avoided, debt collection practices the debtor thought were under control, and other very serious problems for these debtors. In some instances, these bankruptcy mills gave advice that actually caused their clients’ cases to be dismissed, even when they had valid bankruptcy cases.

That said, not all “bankruptcy mills” or high-volume firms are bad. Some attorneys have streamlined the system so that they can effectively, and accurately, handle a large amount of bankruptcies, at an affordable price. Petition preparers can provide a valuable service to those who cannot access a computer or typewriter. It is up to the consumer to find out about a particular company, and ultimately it is up to the debtor to ensure that the paperwork and the rest of the process is being handled properly.

So, if you are interested in affordable legal help for your bankruptcy, you will want to do careful research to ensure you are not getting one of the shady ones. Talk to others who have filed, get references, and check with the Better Business Bureau or other review sites to get a good overview of the company you are considering, and only work with one of these high volume companies if they have a solid reputation. By taking the time to do this research, you are protecting yourself from a potentially dangerous situation.

When you are filing for bankruptcy, one of the things you need to watch out for is bankruptcy fraud. If you are found guilty of providing false information to the courts, information that could alter the course of your bankruptcy case, then you could be considered guilty of fraud. Even if this false information is provided unintentionally, you are still liable for it.

This is a serious thing because of the stiff nature of the penalties. You could face jail time and hundreds of thousands of dollars in fines if the court proves you guilty of bankruptcy fraud. So it is important that you understand what it is and how to avoid it.

Often, people are found guilty of fraud when they try to shield some of their property from the courts as they enter the bankruptcy world. An example of this would be someone transferring his property to another person’s name right before filing for bankruptcy.

One place that some do not realize they can fall into the bankruptcy fraud trap is failing to mention income that you might be receiving in the future. This does not mean income from future potential jobs, but rather income from investments or other venues that you expect to receive sometime in the future.

What type of income might fall into these categories? You might find that savings accounts, deferred compensation retirement accounts, lump sum payments coming soon from your retirement accounts, and pending payments from previous employers for things like sick days or vacation days that you did not use are all considered assets when you file for bankruptcy. The list is seemingly endless, and this is why it can be so beneficial to work with a qualified attorney to help protect you from this. Of course, if you do not have assets like these, then it is not an issue for you.

This was recently seen in a case in Maine. In this case, a man filed for bankruptcy in 2006 and failed to disclose a series of retirement assets and pending payments from former employers. While some types of retirement funds are exempt, others are not, and he failed to disclose the types that are not. He ended up facing the potential of up to five years in jail and $250,000 in fines, if he is convicted of the charges brought before him. All of this happened because he did not mention some of his assets when he filed.

So what does this mean for someone who is considering filing? It simply means that you need to be certain you are disclosing all of your income and assets, even potential future income. If you are uncertain about what you need to disclose, take the time to research it for yourself. If you are not able to do this, then you may want to look into hiring a professional. Help is out there, and it is well worth the cost of hiring someone to help to avoid the costs of being found guilty of bankruptcy fraud.

If you have reached a point with your debt where you have no options, you may be wondering whether letting your home fall into foreclosure or going down the path of bankruptcy is the best option. You are the only one who can ultimately make this decision, but understanding the pros and cons of both options will help.

The Credit Impact

Both foreclosure and bankruptcy will impact your credit rating negatively. The amount of the negative impact is fairly similar. You are going to have a much lower credit score after either event, in most instances.

However, what really matters is how creditors view the event. If your creditors are going to take one look at your credit rating and decide that you are not a good risk, then you might want to avoid that action. If they are going to consider you an acceptable risk, then the option is far less damaging.

With foreclosure, you may find that you struggle to get another mortgage. Lenders are going to view you as a poor risk, simply because you let a home go in the past. This might make it harder to get a new loan.

Bankruptcy, on the other hand, does not show details on your credit history as to why you filed. Many lenders understand that unexpected events happen. Medical bills, the loss of a job, and other emergencies can make bankruptcy necessary even for the most responsible of borrowers. This means that bankruptcy may not impact your ability to get a loan for quite as long as foreclosure.

Keeping Your Home

Another consideration to make when facing these two options is how valuable your home is to you. With foreclosure, you have no ability to keep your home. Once the bank completes the foreclosure process, you must surrender your home to them.

Bankruptcy is another story. Most states have a homestead exemption that allows certain homeowners to keep their home, provided the equity is not above the exemption amount. If you are not behind on your bills, or if you can make an arrangement with your mortgage provider to get caught up on those bills, then you might be able to keep your home by filing for bankruptcy. You will need to maintain your mortgage payments, but the freedom you have from your other debts may free up enough money to allow you to do so.

Protection of Other Assets

If you have other assets in your estate that you want to protect, foreclosure may be a better option. Bankruptcy puts non-exempt assets at risk, so these could be sold to pay back your creditors. Of course, exemptions in many states are quite generous, so you might want to consult with an attorney before making a final decision.

In the end, you will need to decide what your goals are, and make the decision in line with these. Sometimes an attorney can help you outline your goals and come up with a workable solution, but you may be able to figure it out on your own as well. You are the only one who knows the answers to these questions, so you will need to be your best advocate when making this decision.

Chapter 11 bankruptcy protection is one way that a business can restructure itself after facing a debt problem. Like all types of bankruptcy, it has both positives and negatives that a business should consider. If your business is facing debt that you simply cannot deal with on your own, it is worth considering.

What It Is

Chapter 11 is the reorganization form of bankruptcy. It allows the business to stay open, but it requires the owner to start being accountable to the courts for the way the business was handled. The creditors also play a role in governing the business in Chapter 11. The bankruptcy also helps the businesses by cutting some of their debt. This gives the business some breathing room in which they can try to get back on their feet financially.

Downsides of Chapter 11

Chapter 11 can work well, but it is not the answer for all businesses. In order to succeed in Chapter 11, the business must be viable. You must be able to find and fix a problem that will prevent you from falling into the same difficulties again.

Chapter 11 bankruptcy is very expensive. It costs thousands of dollars to get the help you need from an attorney through this process. Not only that, but you have to pay the expenses of administering the case. Sometimes, this includes your creditors, who may not be on “your side.” So, you will be forced to pay the expenses of people who you may not trust or even like.

Finally, you will be subject to court supervision. This can be a downside, because it can mean that you are required to do things for or to your business that you do not want to do. For instance, you could be required to shut down low-performing branches of your business. This could go against your goals for your business, but you may have no choice in the matter.

Filing for Chapter 11 is a public event. Your customers, clients, and suppliers will know that you are in trouble. This could impact your bottom line for a while if trust becomes an issue.

Positives of Chapter 11

The main positive of Chapter 11 is the fact that you do not have to close your doors. You can continue running your business, only with a little “breathing room” for yourself. If you can be quite disciplined and work with good financial planners to help, you may be able to get your business back on track and out of the red with this bankruptcy option. Without it, your only choice may be liquidation if your circumstances have gotten bad enough.

So is Chapter 11 right for your business? You are, ultimately, the only one who can decide. You must take a good, hard look at your situation, your potential future, and your current goals, and determine if there is a chance of keeping your company financially stable as you work your way out of debt.

If you fear that bankruptcy is looming in your near future, there are some things you should (and should not) be doing as you wait for the chips to fall. Some actions you take in the months prior to filing can actually hurt your chances of successfully filing for bankruptcy. Other actions can put you in a better position. These five steps are important before you file.

Talk with an Attorney

Even if you eventually decide not to use an attorney, talking with one prior to filing for bankruptcy is a good idea. Most offer free consultations to help you understand why they would be beneficial to you, so this chat will not cost anything. Talking with an attorney can help you better prepare for the process and determine whether or not you really need one.

Prepare Your Papers

There is a lot of paperwork involved in bankruptcy, and you can begin preparing it long before you actually file. Organize your bills, taxes from the past few years, information about major assets, and other important pieces of paperwork so you can easily access it when the time comes. Most importantly, you need to have access to information about all of your debts, even those you have stopped paying on. The more complete and organized your paperwork is, the better off you will be in the long run.

Stop Charging It

At some point prior to filing for bankruptcy, the debts you incur will no longer be considered dischargeable. The courts do not want to see you racking up a bunch of debt just before you file. A creditor could easily object that you are trying to “work the system” and get a bunch of “free” stuff by charging it right before you file. That money you recently charged is going to be money you are responsible to pay.

Keep Up With Taxes

To qualify for Chapter 7 bankruptcy, you will need to be current on your most current year’s taxes. If you are not, you will not qualify for this form of bankruptcy. The trustee is going to request a copy of your return for the most current year. If you have not filed, you need to do so now, before you begin filing for bankruptcy. Even if it is past the deadline, you need to file in order to avoid having your bankruptcy case denied.

Do Not Make Ownership Changes

It is tempting to transfer the ownership of some valuable asset, such as your boat, in order to protect it during the bankruptcy process. After all, if it does not belong to you, it is not part of your estate, right? Actually, you need to discuss this with a bankruptcy professional first. Some transfers of ownership can be viewed as an attempt to “defraud” the courts and your creditors by “hiding” assets. Even if you legitimately want to sell an item, you should seek professional counsel before you do, because both you and the new owner could end up in trouble if you do so inappropriately.

Most people who file for bankruptcy do their homework about credit scores, loss of assets, and future ability to get loans. What some fail to realize is that there may be tax consequences to the process as well. As you consider filing or start the filing process, knowing these potential consequences is important.

Receiving a 1099 from a Creditor

Sometimes after filing for bankruptcy, a debtor will receive a 1099 from their creditor. This form is used for income outside of taxed income from an employee. This confuses some people into thinking that their discharged debts have now become income to be claimed on their income taxes.

While each case is different, most people do not have to claim the amount on these 1099 forms on their income taxes the year they file bankruptcy. If the debts were fully discharged, they are not considered taxable income, in most instances. Debts that are forgiven outside of bankruptcy, on the other hand, do need to be considered income on your tax return.

Tax Consequences You Will Likely Face

While you do not have to claim the 1099 amount on you taxes, filing for bankruptcy is not without its tax consequences. The discharged debts do not get added to your gross income, but sometimes you will be required to reduce tax attributes by the amount of the debt. Things like net operating losses, basis reductions, and capital loss carry forwards may be affected. While the average consumer does not have these types of things on their tax return, some, particularly those who have businesses, do. It is best to talk to a tax professional or attorney, if you can, to understand the tax consequences you will be facing if your file for bankruptcy.

IRS Form 982

Debtors who want to protect themselves from the potential of paying taxes on their discharged debts can use IRS Form 982. This form properly allocates tax attributes and your debts so that you are likely protected. However, it is sometimes unknown to the average accountant, particularly if the accountant is not well versed in bankruptcy tax laws. Consider asking about it before you file.

Where to Get Help

If you need help in understanding the tax consequences of your bankruptcy, you have a few options. One is to find a tax or bankruptcy lawyer who can explain the laws and how they relate to your case. While there is a decent amount of cost involved with working with an attorney, the benefit is worthwhile, because you will not be left paying a bill you shouldn’t be paying or taxes you should not owe.

Another option is to find the right accountant. You need an accountant who has experience and expertise particularly with bankruptcy and filing taxes after bankruptcy. This is probably not the time to go to your corner tax preparation location. Instead, consider hiring a true accountant who is certified and well trained. You will benefit from their tax and bankruptcy knowledge, and you might save a little money over the law professional as well.

Many debtors are under the impression that Chapter 13 bankruptcy will eventually end in discharge of their debts. This can happen, and it is the way the law designed Chapter 13 to work. However, this may not be as common as you think.

Many people who file Chapter 13 do so because they have too much income to qualify for Chapter 7. Thus, the current bankruptcy laws force them to file Chapter 13, the repayment form of bankruptcy. In these cases, the debtor almost always enters into a five-year repayment period.

In theory, at the end of this repayment plan, any remaining debts can be discharged. Bankruptcy experts, however, tell a different story. They have found that most Chapter 13 cases are either dismissed or are converted into a Chapter 7 bankruptcy.

This leads to the following question: What makes Chapter 13 bankruptcy cases get dismissed? In order to file Chapter 13, you have to have sufficient income to maintain the monthly payments according to the repayment plan. If you circumstances change so that you do not have this income, or you decide you no longer wish to make the payments, then the trustee may make a motion to have your case dismissed.

When this happens, your creditors can once again start trying to collect your debts. Your mortgage lender can foreclose on your home, and your auto loan lender can repossess your car, provided you are behind on those two important debts. You no longer have the protection of the bankruptcy court.

If you find that you cannot make your payments, such as would be the case if you lost your job or had your income significantly reduced, the bankruptcy code does allow you the right to convert from Chapter 13 bankruptcy to Chapter 7. You still have to meet the qualifications for Chapter 7, including the means test, but this will allow you to continue receiving bankruptcy protection. This also means that you can receive the quick debt relief of Chapter 7 bankruptcy.

Keep in mind that a change in income is not the only reason some people convert from Chapter 13 bankruptcy to Chapter 7. Some debtors who otherwise qualify for Chapter 7 may choose to file Chapter 13. They may do this because it gives them the ability to keep some of their important assets, like their car, while working out a repayment plan. However, some may find that, in spite of their best efforts, they still cannot afford the repayment amount under Chapter 13. In this case, they may be able to get relief through Chapter 7, even if it means giving up that asset they were hanging onto.

If you have filed Chapter 13 bankruptcy and find that you cannot make the payments, you have options. Depending on your circumstances, you can either request that the case be dismissed, or you can request to convert to a Chapter 7. If you can make the payments, however, and can finish out the repayment term, then your debts may be discharged at the end of this time, and you can also keep your assets in place. It all depends on your budget, your financial goals, and your current income.

Most people who file for bankruptcy do so to get out from under the thumb of their debtors, yet some will actually have a strong desire to continue paying what they owe, even after they file. If you find yourself in this boat, you do have options, and one of those is to continue to repay your debts that you owe.

One option is to file Chapter 13 bankruptcy. Chapter 13 bankruptcy restructures your debts and puts you into a payment plan. Instead of paying back the debts on the creditor’s terms, you pay them back on the terms you, with the court’s help, have outlined. This can free up a lot of time and money to actually be successful in paying back some or all of your debts. Those who do not qualify for Chapter 7 will have no choice but to file Chapter 13. Those who opt to file Chapter 13 instead of Chapter 7, even if they qualify for Chapter 7, can have this option to repay debts.

Yet, that is not the only option. You can still repay your debts if you file Chapter 7. The difference is that you are no longer legally obligated to do so. Your personal liability for those debts will be removed when you file Chapter 7. If you want to repay your debts, you can. The laws do not prevent you from doing so.

This is very important for those who will file bankruptcy while owing on debts to friends or relatives. While you may not care about backing out of your obligation to your credit card company, those who you love are another story. Under the current bankruptcy code, you can repay those debts how and when you see fit with no penalty, if you do so carefully.

The difference between repaying debts before and after filing for bankruptcy is the fact that the credit card issuers and other creditors can no longer attempt to collect payment from you. Any repayment you choose to make is done on your own terms. If you can afford nothing more than $5 a month, then send that $5 and they will accept it without putting you in violation of the law, because you are protected under the bankruptcy discharge.

That said, there can be some complications if you continue to repay your debts while filing for bankruptcy. If the courts feel like you have the ability to repay what is owed, they may dismiss your case. For this reason, particularly if you have family and friends to repay, you may want to consider asking an attorney for advice before you file or before you begin repaying the debts after bankruptcy.

This is especially true if you start paying them back before you file. This can look like an attempt at fraud, which is very dangerous in the bankruptcy court system. Many debtors find they are better off waiting to make those payments until after the bankruptcy has been filed and approved and the discharge is in place. Because of this possible complication, many choose to use an attorney to ensure they do not compromise their case by repaying a friend or family member.

Many couples who find themselves on the road to divorce also find themselves facing financial difficulties. The fact is that separating from your spouse is expensive, and when you go from two incomes to one, debt is often the result. If you decide to file sometime during or after the divorce process, it will be helpful to know how bankruptcy and divorce interact with one another.

If you qualify and choose to file Chapter 7 bankruptcy, most of your debts that you took on prior to filing are dischargeable. However, there are some distinct exceptions in the case of a divorcing or divorced couple. For instance, if you owe any money to your ex spouse, then you will still be obligated to repay that. Alimony payments are often still required. Debts that are a direct result of the divorce decree may not be dischargeable.

Of course, as with most things, exceptions exist. If the debtor can prove in court that it is impossible for him to pay those debts, they may be discharged. However, the courts will weigh whether the benefit of discharging would be greater than the harm to the non-debtor spouse, and make a decision accordingly.

How would this work in real life? Consider a divorced couple with one spouse employed quite well and the other out of work. If the unemployed individual is the one owing money to the employed individual, the courts may decide to discharge that particular debt, simply because the employed individual is not reliant on that income from the debt, and the unemployed individual has no way of paying. In most instances, however, these specific types of debts are not discharged.

Typically, the non-dischargeable debts in a divorce are those relating to support obligations. If the individual has agreed or been told to provide support for a former spouse or the couple’s, then that must be paid. The only exceptions are when doing so brings great harm to the debtor.

Where this becomes tricky is when the courts must define nonsupport debt. Sometimes, this is not as obvious as the term might seem. Many debts that are not labeled as “alimony” or “child support” can be construed as a support debt. The courts have some leniency in making these decisions from case to case.

If the courts are considering discharging a support obligation, they will take the time to weigh the impact on both parties. This is not a decision they take lightly, because the supported spouse will suffer with the removal of that support. For this reason, many debtors facing this situation opt to hire an attorney.

Divorce and bankruptcy can mix, but it can be a little messy when they do. Because of this, those considering bankruptcy while dealing with the effects of divorce, especially if they are the spouse paying support to the other spouse, need to carefully consider hiring a lawyer. While they can enter into and successfully complete the process without one, the chances of having debts removed are much greater with one.

For homeowners in distress, a short sale often seems like a workable solution to their financial situation. Yet, when further financial difficulties come that mean bankruptcy is inevitable, a short sale may not end up being the best solution.

In a short sale, you sell your home for less than what you owe, often because you have additional loans on the home or property values in your area have dropped so significantly that you have lost all equity and ended up upside down in your mortgage. In this scenario, the bank will have to agree to take this lower amount.

However, that does not mean that you are not liable for the remainder of your debt. In some instances, you can be left holding the bill for the deficiency amount, depending on the laws in your area and your bank’s policies. The good part about a short sale is that you free yourself from the demands of owning and keeping up the property, but the bad part about a short sale is that you could end up with a bill and no home to show for it.

However, should other financial hurdles come your way, such as medical bills or other consumer debts, that make it impossible for you to dig your way out of your financial bind, then you have the option of filing for bankruptcy. Filing for bankruptcy takes away the liability for almost all debts, including your mortgage if you are not in an exempt property.

Because bankruptcy takes away the liability for your debts, it may mean that a short sale is no longer necessary or beneficial. Since you can give your bank the keys to your home, and they have to accept them as payment in full under bankruptcy laws, there is no need to go through the process of doing a short sale in most instances when you are going to file for bankruptcy. With bankruptcy protection, you will not have to worry about holding the bill for the deficiency. Either way, you lose your home, but with bankruptcy you may lose your home with less of a problem afterwards.

However, if you are in a situation where a homeowner’s association is involved, you may find a short sale beneficial. Even with bankruptcy protection, you may find your homeowner’s association giving you trouble. Because there is a strong backlog of foreclosures in many areas, you could be sitting in your home for over a year before the bank actually repossesses it. During this time, you are going to be liable for your dues to the homeowner’s association. Should you be unable to pay, you could find yourself in a lawsuit for this money. Bankruptcy will not protect you, in most instances, because the money is money you “spent” after filing.

To get out of your homeowner’s association responsibilities, you need to sell the property. A short sale may be the only way to do this if you are underwater in your mortgage and your property value has dropped. Otherwise, if you know bankruptcy is coming, you may want to wait on the short sale or talk to an attorney to know if this is your best option.