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Type of Bankruptcy: Understand the differences between Chapter 7 (liquidation of assets) and
Chapter 13 (repayment plan) bankruptcy. Chapter 7 may result in the loss of certain assets but can
discharge most debts, while Chapter 13 involves making payments towards debts over a 3-5 year
period but allows you to keep more assets.

Impact on Credit: Filing for bankruptcy will have a significant negative impact on your credit score,
making it more difficult to obtain loans, credit cards, and possibly affecting rental and employment
opportunities. This impact can last for 7-10 years depending on the type of bankruptcy filed. Most
people will have

Asset Liquidation: In Chapter 7 bankruptcy, you may have to surrender certain assets to pay off
creditors. It’s important to understand state exemptions that may protect some of your assets.

Debt Dischargeability: Most but not all debts can be discharged in bankruptcy! For example, debts
that are difficult, but not impossible, to discharge are student loans, child support, alimony, and certain
tax debts are typically not dischargeable.

Cost of Filing: There are costs associated with filing for bankruptcy, including court fees and
attorney fees. These costs can vary widely from attorney to attorney. The Law Offices of Adele
Schneidereit prides itself on cost accessibility! The cost of filing is $338 for a Chapter 7 and $313 for
a Chapter 13. The cost of credit counseling is included in the flat rate fee at the Law Offices of Adele
Schneidereit!

Eligibility Requirements: There are eligibility requirements for filing under different bankruptcy
chapters, such as income limits for Chapter 7 and disposable income requirements for Chapter 13.

Long-term Financial Goals: Consider how bankruptcy fits into your long-term financial goals.
Bankruptcy provides relief from immediate financial pressures. It may also expand future financial
opportunities because it zeroes out most of your debt.

Alternatives to Bankruptcy: Explore alternatives such as debt consolidation, negotiation with
creditors, or a debt management plan. These options may also impact your credit but could offer a
more favorable long-term outcome.

Legal Advice: Given the complexity of bankruptcy laws and the significant impact on your financial
future, consulting with a qualified bankruptcy attorney is highly recommended. An attorney can
provide personalized advice based on your specific situation and help you navigate the legal process.
Call the Law Offices of Adele Schneidereit at 805-401-0821 ext. 1 for a free half-hour consultation to
talk about your fresh financial start.

Making the decision to file for bankruptcy is a significant one with long-lasting implications. It’s
important to carefully consider these factors and seek professional advice to make an informed
decision that aligns with your financial goals and circumstances. Call the Law Offices of Adele
Schneidereit at 805-401-0821 ext. 1 to talk about your fresh financial start!

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“US Recession Probability Reaches 96 Percent Heading into Q4” 

The Conference Board₁

Is A Recession Coming?

While a recession has not been officially declared, the US GDP shows spending has slowed and prices have increased. Many national experts now say a recession could happen sometime in 2023.

What Is a Recession?

A recession is defined as two consecutive quarters of negative growth meaning the average U.S. consumer is spending less.

When demand peaks, then starts to decline. Excessive supply of goods and services aren’t consumed, companies produce less and downsize. The end result is people lose purchasing power causing a downturn in consumption.  This is the recipe for recession: 

Triggering Factors

There are many factors which need to a recession:

• Inflation

• The Fed raising interest rates
• Russia and Ukraine conflict
• Still suffering from the bottleneck of the COVID pandemic
• Mounting Student loan debt

The chances of a recession ticked higher last week, driven by the Federal Reserve’s latest rate hike and hawkish forward guidance.

How bad could the next recession be?

However, Morgan Stanly feels that this recession won’t be as severe as the Great Financial Crisis of 2007-2008:

Some Aside from the pandemic-induced 2020 recession, other recent recessions have been credit-driven, including the Great Financial Crisis of 2007-2008 and the dot-com bust of 2000-2001. In those cases, debt-related excesses built up in housing and internet infrastructure, and it took nearly a decade for the economy to absorb them.

By contrast, excess liquidity, not debt, is the most likely catalyst for a recession today. In this case, extreme levels of COVID-related fiscal and monetary stimulus pumped money into households and investment markets, contributing to inflation and driving speculation in financial assets.

The difference is important for investors. Historically, damage to corporate earnings tends to be more modest during inflation-driven recessions. For example, during the inflation-driven recessions of both 1982-1983, when the Fed raised its policy rate to 20%, and 1973-1974, when the rate reached 11%, S&P 500 profits fell 14% and 15%, respectively. This compares with profit declines of 57% during the Great Financial Crisis and 32% during the tech crash.

What Can You Do to Prepare?

Know where you are with your money.  Budget.  Cut costs where you can.  

If all else fails, bankruptcy is a fresh financial start for people who just need a do-over.  We can save your home, your retirement accounts, in many cases, all of your other assets while we wipe out your credit card and your other debt.

¹The Conference Board is the global, nonprofit think tank and business membership organization that delivers Trusted Insights for What’s Ahead™. For over 100 years, our cutting-edge research, data, events and executive networks have helped the world’s leading companies understand the present and shape the future.

Related Articles:

https://www.conference-board.org/topics/recession/US-recession-probabilities-reach-96-percent#:~:text=The%20Conference%20Board%20predicts%20a,Federal%20Reserve’s%20interest%20rate%20hikes.

https://www.morganstanley.com/ideas/recession-2022-potential-how-bad

https://www.forbes.com/advisor/investing/are-we-in-a-recession/

https://time.com/6201205/what-is-a-recession-2022/

https://www.cnn.com/2022/10/02/business/global-recession-fears-explained

https://www.cnbc.com/2022/07/20/economists-chance-of-a-2022-recession-is-rising-with-inflation.html

https://www.usnews.com/news/business/articles/2022-09-29/explainer-how-do-we-know-when-a-recession-has-begun

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What Debts Are Discharged in Chapter 7 #

• Car loans (creditor will retain lien)
• Credit Cards
• Deficiency balances on homes, cars, boats, etc. following foreclosure or repossession
• Medical bills
• Mortgages (creditor will retain lien)
• Most lawsuits

What Debts Are Not Discharged by Chapter 7 #

• Debts for personal injuries caused by the debtor operating a vehicle while intoxicated
• Debts incurred to pay nondischargeable taxes
• Debts not properly listed in the schedules
• Domestic support obligations such as spousal maintenance or child support
• Most student loans
• Most taxes (some older income taxes may be discharged)
• Reaffirmed debts

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Because of repeated COVID closures or otherwise, if your sole proprietorship is struggling with mounting debt, you can file bankruptcy in one of two ways, Chapter 7 or Chapter 11. Once bankruptcy proceedings are started, creditors cannot attempt to collect debt from you or the business until the bankruptcy process has ended.

Chapter 7 bankruptcy can eliminate most or all of your and your business’s debts. Yet, after a chapter 7 bankruptcy, the business is unlikely to continue. You will be allowed to keep some “tools of the trade.”

Chapter 11 bankruptcy is used by people who want to continue operating a business and repay creditors throughout the court approved payment plan. Property is not sold, but the debts must be eventually repaid.

More on other types of business bankruptcy in later articles.

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Car loans consist of two agreements: (1) a promissory note where the lender pays a sum of money to the seller and the borrower promises to pay it back, and (2) a security agreement where the borrower promises the lender a security interest, which in this case is the car. If the borrower doesn’t pay, the lender can repossess the car and sell it to get back some of what’s owed on the loan.

Redemption means paying the lesser of either: fair market value of the car or the outstanding balance. Redemption funding is sometimes available.

Reaffirming the debt is promising the lender you’ll repay the original loan or renegotiating the loan in exchange for keeping the car. The lender will have to agree to terms. You will sign the agreement and file it with the bankruptcy court.

Your attorney may approve the reaffirmation agreement, or the judge will decide if the agreement is in your best interest.
The judge will do this by weighing your income against the amount owed on the car and its value.

Surrendering the car is just what it sounds like: giving the car back.

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After bankruptcy, it’s common for people to receive numerous offers in the mail.
The reason for this is after filing a Chapter 7 bankruptcy, a person cannot file another for eight years. Some lenders consider that a good financial risk. After bankruptcy, people should look for credit cards without unnecessary fees. Some of the post-bankruptcy credit card offers have higher interest rates. Also, try to pay off the balance in full every month to avoid interest charges.

After bankruptcy, take steps to rebuild your credit. Once a year, request a free copy of your credit report from each of the three major credit bureaus at AnnualCreditReport.com. Check to verify that delinquent accounts which were part of the bankruptcy are no longer reflected on credit reports. These will needlessly deflate your credit score. Make sure you report and repair errors. Your credit score should improve.

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I know some people who have generally had a good experience with debt consolidation. The promises are the debt will be repaid sooner, simplified finances, lower average interest rates (credit cards of 18.7% v. 10.07% APR in debt consolidation), and a fixed repayment schedule. But please be careful. I have had a lot of clients who have come to me after paying tens of thousands of dollars to debt consolidation companies only to have to seek bankruptcy protection after paying all that money. Debt consolidation won’t solve the underlying problem. There are some upfront costs, including loan origination fees, balance transfers, closing costs, and annual fees.

The bottom line is for each of my clients who had tried debt consolidation before bankruptcy, the client would have been better off seeking bankruptcy protection sooner. They could have been starting fresh financially instead of emptying their proverbial piggy banks to service mounds of debt for years.

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