Will I Lose Property In Chapter 7 Bankruptcy
- Home equity. A “homestead” exemption protects home equity. You can exempt up to $27,900 under federal exemptions. Most states allow debtors to protect some home equity, although a few states don’t have a homestead exemption. Find out more about your home in Chapter 7 bankruptcy.
- Insurance. You usually get to keep the cash value of your policies.
- Retirement plans. ERISA-qualified plans receive protection in bankruptcy. Find out more about your retirement plan.
- Personal property. You’ll be able to keep a modest car and most household goods, furniture, furnishings, clothing, appliances, books, and musical instruments. Luxury items aren’t protected, and jewelry is often limited to around $1,000. Most states let you keep a vehicle as long as your equity doesn’t exceed several thousand dollars. Many states have a “wildcard” exemption you can apply toward any property. Learn more about what happens to your automobile in your car in Chapter 7 bankruptcy.
- Public benefits. Welfare, Social Security benefits, stimulus payments, unemployment insurance, and the like are protected.
- Tools used on the job. Most states allow filers to keep up to a few thousand dollars worth of the tools used in a trade or profession.
Most Agencies Offer Bankruptcy Courses Online But Some Also Offer The Courses By Telephone Or In
Filing bankruptcy is not the end of the world. For most people filing Chapter 13 bankruptcy in Arkansas is the first step on the road to financial recovery. A bankruptcy case gives you the fresh start you need to take control of your finances after a financial crisis makes it difficult to pay your debts that are still within the statute of limitations.
We answer your questions about bankruptcy in Arkansas so that you have the information you need to decide whether bankruptcy is right for you. This article should help clear up any confusion regarding Chapter 13 bankruptcy in Arkansas, but if you are interested in learning more, you can read this article on the costs of filing bankruptcy in Arkansas.
In our Arkansas bankruptcy guide, you learn about:
- Means Testing in Arkansas How Does the Means Test Impact My Bankruptcy Case?
- Arkansas Bankruptcy Exemptions
- Chapter 7 vs. Chapter 13 Bankruptcy in Arkansas
- Arkansas Credit Counseling and Debtor Education Courses
- Bankruptcy Courts and Trustees for Arkansas
- Alternatives to Filing Bankruptcy in Arkansas
Means Testing Arkansas
How Does the Arkansas Means Test Impact My Bankruptcy Case? Congress revised the Bankruptcy Code in 2005, lawmakers were under a great deal of pressure to include provisions aimed at reducing bankruptcy fraud. One of those provisions was the introduction of the Arkansas Bankruptcy means test.
Lets look at how to calculate the Means Test and what it means for your Chapter 7 or Chapter 13 case.
Is Bankruptcy The Right Choice For Me
Bankruptcy may be a necessary step if your debts have become so overwhelming that youll never catch up, given your current circumstances. But filing for bankruptcy should be a last resort after youve explored all your options. The damage to your credit can be substantial, making it hard or even impossible to get a car loan or mortgagemaybe even a job.
There are alternatives to bankruptcy you should consider first.
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How Does Bankruptcy Work
Bankruptcy is a method to eliminate or at least reduce your debt when bills pile up beyond your ability to repay them. It should be viewed as a last resort to be considered only when all other potential courses of action to get back on track have been exhausted.
Individuals filing for bankruptcy mostly use either Chapter 7 or Chapter 13. The biggest difference between the two is what happens to your property:
- Chapter 7, which is known as liquidation bankruptcy, involves selling some or all of your property to pay off your debts. This is often the choice if you don’t own a home and have a limited income.
- Chapter 13, also known as a reorganization bankruptcy, gives you the chance to keep your property if you successfully complete a court-mandated repayment plan that lasts between three and five years.
Depending on where you live and your marital status, some of your property may be exempt from being sold when you file Chapter 7 because of state-specific and federal exemptions. With exemptions, whether they be your home equity, retirement accounts or even personal possessions such as jewelry, you receive the allowed exemption amounts, and the rest of the proceeds will be used to pay off debts. You can read more about potential exemptions, and check out this chart for a quick rundown on the two types:
- Child support or alimony
Impact On Credit History
A Chapter 7 bankruptcy stays on an individuals credit report for 10 years from the fate of filing
A record of Chapter 13 bankruptcy stays on an individuals for up to 7 years. You may apply for new credit cards after 12-24 months, a new FHA mortgage loan 24 months after discharge, and a new Fannie Mae and Freddie Mac loan after 36 months.
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Chapter 7 Vs Chapter 13 Comparative Table
|Basis of comparison
|Cannot have more than $394,7255 of unsecured debt or $1,184,200 of secured debt
|How Long Does It Take to Receive a Discharge?
|Typically 3 to 5 months
|Upon completion of all plan payments
|What Happens to Property in Bankruptcy?
|Debtors can sell all non-exempt property to pay creditors.
|Debtors keep all property but must pay unsecured creditors an amount equal to the value of non-exempt assets.
|Allows debtors to quickly discharge most debts and get a fresh start.
|Allows debtors to keep their property and catch up on missed mortgage, car, and nondischargeable priority debt payments.
|The trustee can sell the nonexempt property. It doesnt provide any way to get hold of missed payments.
|Must make monthly payments to the trustee for 3 to 5 years. May have to pay back a portion of general unsecured debts.
|How long does bankruptcy remain?
|Ten years from the filing date because there is no repayment of any debt.
|Seven years from the filing date because a portion of the debt is repaid under the discharge plan.
|Effect on credit score
|Flag for a Chapter 7 bankruptcy stays on there for ten years.
|Flag for a Chapter 13 bankruptcy is removed from the debtors credit history seven years after filing.
|The requirement for bankruptcy proceedings to end
|The court must have entered a discharge order.
|The borrower must have made all payments in accordance with the court-approved plan, after which the court enters the discharge order.
Chapter 7 Vs Chapter 13
When deciding between Chapter 7 vs. Chapter 13 bankruptcy, itâs important to consider:
the types of debt you have ,
if any of your personal property would be considered a nonexempt asset,
if your regular monthly income is enough to cover your living expenses, and
the difference between Chapter 7 and Chapter 13 on your credit report
Bankruptcy can be a powerful poverty fighting tool and help thousands of families get back on their feet every month. If youâre facing wage garnishment, know the Bankruptcy Codeâs âautomatic stayâ protects you from any future garnishment as soon as your case is filed. If youâre not sure whether bankruptcy is right for you, keep doing what youâre doing and research. You may even consider signing up for a free credit counseling session to learn more.
Donât be discouraged – or embarrassed – by the idea of filing bankruptcy. If COVID-19 and its impact on everyone in the United States and around the world has shown us anything, it’s that life happens. Bankruptcy laws exist to give you a fresh start. Thereâs no shame in using this legal tool, just like Walt Disney, Abraham Lincoln, and Henry Ford did when they needed help.
Filing Chapter 7? Upsolve may be able to help…
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How Does Filing Bankruptcy Impact Credit
Your credit may not be in tip-top shape by the time you consider filing for bankruptcy, since high balances and missed payments are the top factors affecting your credit score. Still, the presence of a bankruptcy on your credit report will severely impact your credit scores and creditworthiness the entire time it is on your report. That impact will lessen as time passes, however. Chapter 7 bankruptcy remains on your report for up to 10 years, and Chapter 13 stays there for up to seven years.
It’s not an ideal credit situation, of course, but you can use the time to manage your debts wisely and make consistent on-time payments. Like with any damage to your creditworthiness, it’s possible to rebuild your credit with some focus and patiencealong with using the debt relief provided by the bankruptcy to get back on track financially.
Drawbacks Of Chapter 13 Bankruptcy
Although you can keep your property, Chapter 13 bankruptcy is no picnic.
- Discharging your debts can take three to five years.
- Because a lot can happen in three to five years sickness, divorce, getting laid off Chapter 13 bankruptcy has a high failure rate.
- The repayment will tighten your budget.
- Its more complicated than Chapter 7, so youll need to hire a bankruptcy attorney, which will cost somewhere between $3,500 and $5,000.
- If you dont keep up your repayment plan, your bankruptcy case could be dismissed or converted to Chapter 7, which means you could again be in jeopardy of losing assets like your home or car.
- Failing to file required taxes during your case or failing to pay child support and alimony could also send you into Chapter 7 bankruptcy.
- Youll have to send a copy of your income tax return to the Chapter 13 bankruptcy trustee every year during your bankruptcy case. If you get a tax refund, that money will go to your unsecured creditors on top of your regular monthly plan payments.
Advantages Of Chapter 7 Bankruptcy
Chapter 7 bankruptcy is an efficient way to get out of debt quickly, and most people would prefer to file this chapter, if possible. Here’s how it works:
- It’s relatively quick. A typical Chapter 7 bankruptcy case takes three to six months to complete.
- No payment plan. Unlike Chapter 13 bankruptcy, a filer doesn’t pay into a three- to five-year repayment plan.
- Many debts get wiped out. A filer emerges debt-free except for “nondischargeable” debts like student loans, recent taxes, and unpaid child support.
- You can protect property. Although you can lose property in Chapter 7 bankruptcy, many filers can keep everything they own using bankruptcy exemptions. Bankruptcy lets you protect most necessities, and if you don’t have much in the way of luxury goods, you’ll likely be able to “exempt” or protect all or most of your property.
- You can keep a house or car in some situations. You can also keep your home or car as long as you’re current on the payments, can continue making payments after the bankruptcy case, and can exempt the amount of equity you have in the property.
Eligibility Requirements Between Chapter 7 And Chapter 13 Differ
The eligibility restrictions for Chapter 7 and Chapter 13 bankruptcy are also different. Chapter 7 requires your current monthly income to be less than or equal to your states median income level. If not, you must pass a means test to determine whether you will have enough remaining income to pay your debts after covering essential expenses. If you do not pass the means test, you might be able to file for Chapter 13.
To qualify for Chapter 13 bankruptcy, you must have a regular income, unsecured debts under $419,275, and no more than $1,257,850 of secured debt . You will get to keep your property, but you must pay your unsecured creditors an amount that is equal to the value of your assets not covered by a bankruptcy exemption.
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Choosing Between Chapter 7 And 13
Are you considering bankruptcy? Whether its Chapter 7 or 13, you have options. Bankruptcy is a challenging, life-altering experience.
If you are considering consulting with an attorney about your debt-relief options, it is essential to remember that each type of bankruptcy comes with its advantages and disadvantages.
Most people filing for either Chapter 7 or 13 bankruptcy will work directly with an attorney to determine the best option for each financial circumstance.
Helping You To Decide Whether Chapter 7 Or Chapter 13 Is Best For You
No part of the Bankruptcy Code prohibits a debtor from exercising the right to file Chapter 13, even though they qualify to file a Chapter 7. Public policy provisions encourage, rather than discourage, Chapter 13 cases. By enacting the Bankruptcy Abuse Prevention and Consumer Prevention Act of 2005 , Congress clearly indicated its intent for debtors who could repay a portion of their debts to file a Chapter 13 rather than a Chapter 7. Many of the BAPCPA amendments were designed to steer debtors to Chapter 13, rather than a Chapter 7, as the policy driving the amendments is that of repayment of debts. This congressional intent to encourage Chapter 13s and to pay creditors has been in effect since the enactment of the Bankruptcy Reform Act of 1978, which created the Bankruptcy Code.
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Heres The Difference Between Chapter 7 And Chapter 13 Bankruptcy
It is said that the world is in a state of bankruptcy that the world owes the world more than the world can pay … Ralph Waldo Emerson
Chapter 13 bankruptcy originally arose from the need to look out for wage earners, and to this day, what differentiates it most from Chapter 7 is the idea that as long as regular efforts are made to get out of debt, property can be kept and wages can be free of garnishment.
This blog post explains some of the differences between Chapter 7 and Chapter 13. It provides some takeaways about the economics of bankruptcy, as well.
Why would someone choose Chapter 13 over Chapter 7? One reason may be that under Chapter 13, the list of debts eligible for discharge is more expansive.
Other Ways To Void Unsecured Debts
Bankruptcy is not the only way to get debts discharged. This forum post has some great information on how to use provisions of the Fair Credit Reporting Act to get unsecured debts voided. Many of these techniques take advantage of the fact that evidence of the debt is often unavailable to the collection agency. When debt cannot be documented, FCRA mandates that it must be voided.
What Effect Does Bankruptcy Have On Credit
Your credit score is affected by missed payments and large balances. Therefore, you may need to file bankruptcy if your credit is not in good standing. However, a bankruptcy will negatively impact your credit score and creditworthiness throughout your entire life.
The effect will diminish as time goes by. For example, Chapter 7 bankruptcy can remain on your file for as long as ten years while Chapter 13 bankruptcy can be kept on your file for as long as seven years.
Your credit situation may not be perfect, but you can still take advantage of the extra time to manage your obligations and make timely payments. You can fix your credit with patience and effort. Also, bankruptcy can provide debt relief to help you get back on your feet financially.
Chapter 13 Requires A Repayment Plan
Chapter 13 is a reorganization bankruptcy. It allows individuals to restructure their debt. By filing Chapter 13 bankruptcy:
- Debt collection, vehicle repossession, and property foreclosures can be stopped.
- Past due mortgage payments can be caught up over time.
- Debt can be reduced and repaid in smaller amounts and over a longer period.
- Non-dischargeable debts can be reorganized but not eliminated.
Under Chapter 13 bankruptcy, you likely will get to keep your property, such as your home. However, you must repay creditors in an amount equal to the value of your property not covered by the bankruptcy exemption.
You make all payments to the trustee, who will then pay the creditors. This means you will have no direct communication with creditors after youve been granted Chapter 13 protection.
For a legal consultation, call
It Can Help You Repay Your Debt
Chapter 13 can also provide a more convenient and cost-effective way to repay your debt. Through Chapter 13, youll make a plan to repay all or some of your debts. You can make one consolidated monthly payment toward your debts based on your repayment plan. This lump payment will then be distributed to your creditors. Your monthly payments may also be reduced for certain types of debts, so you can repay them over the course of your three- to five-year plan.
Chapter 7 Bankruptcy Clears Most Unsecured Debt
Unsecured debt is debt without collateral. For instance, if you did not agree to the creditor seizing the property obtained on credit, the debt is unsecured.
If you owe a mortgage or car payment, you likely agreed that if you fail, the creditor may take your property, sell it, and use the proceeds to repay the obligation. This is a secured obligation. Collateral guarantees debt repayment.
Rental payments are one of the most typical unsecured consumer debts. Chapter 7 allows for the discharge of unsecured debts.
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