When someone needs to file for bankruptcy protection, he or she needs to make one initial decision – the type of bankruptcy that should be filed that’s right for the situation.  There are choices for the consumer, namely petitions under either Chapter 7 or Chapter 13 of the United States Bankruptcy Code.

Below is a brief explanation of how filing a Chapter 7 bankruptcy works, but regardless of your financial situation, you need to seek legal help to make sure that your petition proceeds properly.

Chapter 7 Explained

If a consumer files a Chapter 7 petition, he or she is filing what’s known as a ‘liquidation bankruptcy.’  This is because in certain respects, the petitioner will be liquidating a majority of the assets held at the time of the filing, but not all of them, as will be explained below.  The steps for filing a Chapter 7 bankruptcy petition are as follows:

1. Gather your financial information – When you file a Chapter 7 bankruptcy petition, you will need to present a complete schedule of your assets and your liabilities to the Bankruptcy Court for the Trustee to review.  This information is the foundational basis for filing in the first place – you’ll need to show that your liabilities exceed your assets.
2. File your petition – After you’ve organized all of your financial information, you need to put the documentation together and file it with the Bankruptcy Court.  Assuming the initial petition is reasonable, the court will usually respond by serving a Stay of Execution on the creditors named in your petition, which is basically an order from the court that requires the creditors to cease with collection efforts.
3. Go to your hearing – The next step in the process is going to a hearing with the Bankruptcy Trustee, and your creditors have the option of attending as well.  At this time, the Trustee will ask you on the record if your petition is accurate and will note any objections your creditors may have.
4. Wait for the Order of Discharge – Assuming there are no problems with your petition, the court will review the information and issue an order discharging your debts.  In order to comply with this procedural step, you’ll need to liquidate your assets minus any exemptions.  When this is complete, your bankruptcy is complete and your debts are eliminated.
5. Note on exemptions – Exemptions are values placed on certain property that cannot be liquidated, as the Bankruptcy Court does not want to leave petitioners completely destitute.  What this means is that you are allowed to keep certain assets up to a certain value including a house, a car, any materials you need for work and even pets, among other things.  Different states have different exemption levels, so you’ll need to get those amounts clarified before moving forward.

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A study in the American Journal of Medicine recently reported that approximately two-thirds of bankruptcies in the United States were related to medical problems.  What they found surprising in this article was the fact that the majority of those who filed for bankruptcy had health insurance.  In fact, they found that almost 80% were insured, including some 60% who had private health insurance.  Before filing for bankruptcy, these people were solid mid class citizens and then financial disaster hit.  Of these people, about two-thirds owned homes and around 66% attended college.  Unfortunately, increasing medical bills were met with loss of work hours and lower pay, or loss of job totally.

In many instances loss of employment also results in loss of health insurance and soon the families are paying medical expenses out of their pockets, which can often result in the quick disbursement of savings accounts, bonds, and other investments, leaving the family with no way out but to declare bankruptcy.

For many families, bankruptcy is a shameful thing and this leads to bouts of depression, and often more medical expenses.  Before long, that same family that worked hard for so many years to put away enough savings to get them through a rainy day, is just a few weeks away from being broke, homeless, and on the streets, leaving them with little choice but to declare bankruptcy.  Unfortunately, once medical expenses start to mount they have a tendency to spiral out of control like a fast moving locomotive, adding additional expenses in the form of late payment penalties and interest carrying charges.  For most people, this is the only way they can see to get out from under their mounting medical expenses.

Realistically, most mid-class Americans have very little protection, as their health insurance policies are leaving gaping holes in cover, high deductibles for illnesses can make you poor quickly, and many have additional co-payments.  Even those with additional disability coverage doesn’t always escape the problems that arise due to illnesses.

Before filing for bankruptcy, many families could benefit from sitting down with someone from their health insurance company and asking what type of coverage is available for people in their situation.  Most good health insurance companies will take a little time to assist these families and help point them to someone who can assist them to get additional cover.  One of the biggest problems these families face is not knowing where to turn to find the help they require, before they reach the point of “no return”.

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If you are having trouble making payments on your mortgage loan, do not wait until you are being threatened with foreclosure. As soon as you realize that you are going to fall behind on your payments make arrangements with your lender to make adjustments to the payments. If your lender cannot agree to this. There are equity loans available to stop foreclosure.

There are other legitimate lenders who offer loans to prevent you from losing your home. The problem is you could fall behind again on the terms of the equity loans. So your best bet would be to negotiate for mortgage loan modification. This is not a new loan that you will be getting. It is simply a re-negotiation of the conditions of your existing loan.

To be able to qualify for loan modification you just need to provide more than enough documentation to show your financial hardship. You must also produce your financial statements for at least the last year and your income tax statements as well. Equity loans to stop foreclosure will be able to save your property but you risk losing your home in future if you skip on the payments.

The fine print in these equity loans is very strict and if you do not pay attention to it you could find yourself in more trouble than when you started. It will be difficult to get a loan especially that you are now inn financial trouble. Anyone offering you money at this stage wants take advantage of the situation.

But with mortgage loan modification you can increase the payment period, you can negotiate a reduction in interest fees. You can get the late payment fees wavered. It would be in your best interests to get a review that will suit the current hurdles you face. Speak to some professionals on mortgage loan modification and avoid the equity loans to stop closure.

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While foreclosed homes tend to be lumped into one type of property, there are in fact many types of distressed property. Each has their own advantages and potential pitfalls for the buyer:

1) HUD homes. HUD (The Department of Housing and Urban Development) homes are sold by the federal government. The last owner of an HUD home had a government-insured loan. When the owner defaulted on this loan, the lender recouped the money lost on the loan via the government. The government is selling the home. HUD homes are attractive because the HUD offers many special programs for first-time and low-income homebuyers. If you qualify for one of the HUD’s programs, you could enjoy substantial savings. HUD homes are also appealing because they can be purchased through an HUD-approved real estate agent, who can guide the buyer through the process.

2) VA homes. VA homes are being sold by the Department of Veteran Affairs (VA). The last owner of a VA home was a member of the army, navy, or another branch of the military. When this owner defaulted on the mortgage, the VA paid for the default amount and took possession of the property. Buying a VA home means that you buy a home with some of the same advantages as a member of the military. For example, you may not have to pay mortgage insurance on the property.

3) Tax sale homes. Tax sale homes are sold through public auction because the homeowner has failed to pay property taxes on the property. In many cases, this type of foreclosure can be purchased for the amount of outstanding taxes – which is often a small fraction of the home’s value. However, tax sales are very competitive and the price of these homes quickly rises as bidders vie for the property. As well, tax sale homes are sold with no warranties so that it is often hard to tell whether there are major problems with the home.

4) Foreclosure homes. Foreclosure homes are sold through public auction. Some are sold at deep discount and some are sold for nearly full market value. It is up to the buyer to do enough research to ensure that they are getting a foreclosure deal and not a dud.

5) Pre-foreclosure homes. These foreclosed houses have not gone into foreclosure – yet. Usually, the homeowner is facing a financial crisis and is willing to sell the home for less than full market value in order to avoid foreclosure. Pre-foreclosures vary widely. Some offer a good discount while some homes have too little equity to make a good bargain. It is up to the investor to put together a deal that is attractive to the homeowner and a good business plan for the investor.

6) REO real estate. REO (Real Estate Owned) properties are sold as foreclosures through a lender or a lender’s representative. Usually, REO homes have failed to sell at auction or were purchased by the lender at auction. Usually, these homes do not offer a huge discount. In fact, some are priced at full market value or even above. Still, some REO houses are a good bargain. One major advantage of buying an REO home is that title problems are usually taken care of by the lender, so there is less risk buying this type of property. As well, some lenders are willing to offer great rates on loans for buyers of REO homes.

7) Distressed properties. “Distressed properties” is an umbrella term for any property that has some disadvantage that may affect its asking price. For example, foreclosures are often called distressed properties, as are homes that need some repairs or renovations.

FSBO homes. For Sale by Owner (FSBO) homes are sometimes pre-foreclosure homes although they can also be homes that are not at risk of foreclosure. Some FSBO properties are sold at below market value because the owner is motivated to sell and is saving money on a real estate agent – a savings he or she passes on to the buyer.

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