Why Should I File For Bankruptcy
Its doubtful everyone who seeks debt forgiveness through bankruptcy shares the same reason. But if you are feeling alone in your choice, it may help to know what the common causes are.
Researchers disagree on why people file for bankruptcy, and it likely has something to do with the fact that its not necessary to include that information when filing a bankruptcy petition.
One widely sourced 2009 study from Harvard University points to medical debt as the main reason behind personal bankruptcy. Sixty-two percent of all bankruptcies filed in 2007 were due to medical debt, according to that study. And 92 percent of those debtors were more than $5,000 in the hole for medical expenses. Another study from nonprofit organization the Center for Consumer Recovery concludes legal obligations to be the biggest source of bankruptcy. Seventy-eight percent of personal bankruptcy cases are due to pressure from debt collection lawsuits, according to the CFCR. That reason was followed by 18 percent saying aggressive debt collectors drove them to file, and finally, a small 4 percent say the volume of their debt was their reason to file for personal bankruptcy.
Here are the most common reasons cited for declaring bankruptcy:
- Loss of income
- Garnished wages due to a lawsuit
- Owing taxes
Informal Arrangement With Creditors
If you cannot obtain financing for a debt consolidation loan, you may be able to make an informal payment arrangement directly with your creditors. They may agree to let you pay a lesser amount, or make your payments over a longer period. You should first learn how your credit rating will be affected before agreeing to such arrangements. Sometimes creditors agree to reduce your debt or extend the repayment term, but will still report you to the .
Which Is Best For Me
Comparing the two debt relief help can aid you in making a sound decision on what to choose. However, before you conclude, it is a must that you consider professional advice. This way, you will if you can qualify for a debt settlement rather. Bear in mind that help is always available and all you need is to SEE IF YOU QUALIFY.
Is Debt Relief Better Than Bankruptcy
Before we talk about whether debt relief or bankruptcy is better, lets go over the differences between the two. Both are solutions to overwhelming debt, but its important to know that they absolve you of your debt in very different ways.
Bankruptcy is a legal process that can help relieve you of certain types of debt. You must hire a bankruptcy lawyer before you file for bankruptcy. The goal of most bankruptcies is to wipe away debt and give you a fresh financial start. Declaring bankruptcy is a very effective way to eliminate debt, but it isnt a complete solution. There are a few kinds of debt that you cannot discharge in bankruptcy. For example, owed child support payments and most student loans are exempt from bankruptcy.
There are two main types of bankruptcy classifications:
No matter which type of bankruptcy you choose, youll see a significant impact on your credit score. It can take years to recover from the effects of a bankruptcy. When you have a bankruptcy on your credit report, youll have a much harder time opening new cards and loans.
Unlike bankruptcy, most types of debt relief dont involve a court or legal proceedings. Instead, you negotiate with your creditors and create a plan to repay all or a portion of your debt. There are multiple types of debt relief, including:
Each type of debt relief has its own benefits and drawbacks. Well take a closer look at how debt relief methods affect your credit score in later sections.
Understanding How Debt Consolidation Loans Are Handled Throughout The Bankruptcy Process
If you happen to have a debt consolidation loan during the time period that you are filing for bankruptcy, you need to understand exactly how this will apply. The debt consolidation loans will be treated as unsecured debt. Unsecured debt means that you will be able to have this debt discharged just as you would other debt. Because of this, filing for Chapter 7 bankruptcy might be what you need to do if much of your debt is in the form of a debt consolidation loan.
You have to get the help of a bankruptcy lawyer who understands these processes because you run the risk of having your debt considered bad faith if you do not handle it accordingly and if it raises suspicion. Having the help of an attorney who can represent you will give you the opportunity to make sure that you are treated fairly in bankruptcy court, while also having your debt consolidation loan discharged.
So when you reach out to a reputable company, you will have nothing to worry about should you later decide to file for bankruptcy. You will be in good hands and able to get the help and service that you need both from debt relief professionals and bankruptcy professionals when those situations arise. Understanding what is expected of you will make the process clearer for you.
You will need to reach out to a high-quality debt consolidation company that is able to assist you.
Reasons To Consider Filing For Bankruptcy
Surveys agree that job loss and medical debt are the two biggest reasons for considering bankruptcy. Many times, the two team up and light a torch to a familys financial plans.
Health problems can make it difficult or even impossible to do your job. The result is you either quit or are let go by the company. That is a toxic combination because you lose your source of income at precisely the same time expenses go up.
There are some other, less imposing situations that could cause you to consider bankruptcy. You might be headed down that road if:
- You are getting a divorce
- The home you own is under water and in danger of foreclosure
- The only way you can pay for things is using a credit card
- You use one credit card to pay off another
- You are considering withdrawing money from a 401 account to pay bills
Filing For Bankruptcy: A Fresh Start At High Cost
Declaring bankruptcy essentially tells your creditors that you have no means of repaying your debts. If you declare bankruptcy, your debt repayments stop, and your creditors must cease all attempts at collecting their money. Bankruptcy erases many of your debts, though certain ones are exempt. If you file for bankruptcy, you may still have to pay the following obligations:
- Court fines
- Court-awarded damages from assault cases
- Student loans
Exemptions may vary by location. Check with your provincial or territorial government regarding which debts you will still have to repay if you file for bankruptcy.
If you file for bankruptcy, you must keep meticulous records of all income and expenses for however long your bankruptcy lasts. You may be required to give up some of your possessions. You may have difficulty renting a new living space or securing student loans. Declarations of bankruptcy do show up on employer background checks, which may hinder your ability to find a new job.
Bankruptcy will make it challenging to apply for a business loan, enter a new phone contract, or get a mortgage. A declaration of bankruptcy stays on your credit history for seven to ten years. Only after this period has elapsed do you get your fresh start.
Should You Consult A Bankruptcy Lawyer
You now have a general answer to the question What can you file bankruptcy on? But its still a good idea to check with an attorney for information on your specific situation.
Debtors who believe they may owe debts which may or may not be dischargeable should consult with an experienced bankruptcy attorney who routinely practices in the court where their case would be filed, advised Petersen. He said you should avoid representing yourself in court.
If you cant afford a lawyer, you might be able to find free help through a local legal clinic or society. With their expertise, you can determine the best course of action for your finances.
You can find options for restructuring and paying off debt, even if bankruptcy doesnt turn out to be one of them.
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Bankruptcy Or Debt Consolidation: Which Is Better For You
If your debts are becoming unmanageable, bankruptcy and debt consolidation are two remedies to consider. While debt consolidation is significantly less damaging to your credit, it’s not possible for everyone. If you’re getting overwhelmed with debt, here’s a rundown on which option may be better for you.
Private Loan Modification Or Settlement
Your options to reduce private loan payments or get out of default vary greatly based on the lender. Communicate directly with your private lender or servicer to explore loan modification programs if you cant afford your payments long-term.
If youre behind on your loans, you could consider reaching a settlement agreement with the lender or collection agency. At which point, you would pay a lump sum settlement thats less than your total outstanding balance. But you may have to pay taxes on this amount, and it could be unaffordable.
If you can, consult a tax professional or lawyer with student loan expertise if youre in communication with a collection agency about a settlement.
Which Debts Can I Eliminate By Filing For Bankruptcy
Filing for bankruptcy allows you to eliminate all of your unsecured debts, including credit cards, lines of credit, bank loans, payday loans and income tax debts. Student loans can only be eliminated in bankruptcy if youve been out of school for more than seven years. If you have been out of school for less than seven years you may still be able to eliminate student loans under certain hardship conditionsyour local LIT can review those conditions with you.
You Can’t Keep The Property When The Credit Card Debt Is Secured
In rare situations, the credit card lender may take a security interest in some of your property in the credit card agreement. Jewelry, electronics, mattresses, furniture, and large appliances often are collateral securing the purchasecheck your contract and receipt. If the debt isn’t unsecured, you’ll be able to wipe out the debt, but the creditor will be entitled to the property securing the obligation. Learn more about secured property.
Choosing The Best Path Forward
If youre struggling with income tax debt, its important to understand your options. Rest assured, your local MNP LTD Licensed Insolvency Trustee is here to provide the impartial advice and hands-on guidance you need to choose the best course of action. Let us walk you through your options. Start today with a free confidential consultation.
Managing Your Auto And Home Loans
Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any particular asset, and include most credit card debt, bills for medical care, and signature loans.
Most automobile financing agreements allow a creditor to repossess your car any time youre in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.
If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.
How Will A Debt Consolidation Loan Affect My Credit Score
Having a debt consolidation loan will typically affect your in a positive way because the existing loans are reported as paid in full and removed from your credit report. Although taking a new loan is added to your credit history, if you consistently make your new loan payments on time, this will also positively affect your credit score over time.
A debt restructuring agency can help you apply for a debt consolidation loan and provide advice and help with other solutions to eliminate your debt.
How Do You File Chapter 7 Bankruptcy
You can probably complete the process within six months. You’ll have to follow several steps.
Find an attorney:Before diving into the various forms required to file Chapter 7, find a qualified bankruptcy attorney to help. Its hard to find money for a lawyer when you need debt relief, but this is not a DIY situation. Missing or improperly completed paperwork can lead to your case being thrown out or not having some debts dismissed.
File paperwork: Your attorney will help with filing your petition and other paperwork. But its on you to gather all relevant documentation of your assets, income and debts. An automatic stay goes into effect at this point, meaning that most creditors cannot sue you, garnish your wages or contact you for payment.
Trustee takes over: Once your petition is filed, a court-appointed bankruptcy trustee will begin managing the process.
Meeting of creditors: The trustee will arrange a meeting between you, your lawyer and your creditors. Youll have to answer questions from the trustee and creditors about your bankruptcy forms and finances.
Your eligibility is determined: After reviewing your paperwork, the trustee will confirm whether youre eligible for Chapter 7.
Secured debts: To resolve your secured debts, the property held as collateral may be ordered returned to the creditor. Or you may be able to redeem the collateral or reaffirm the debt .
Should I File For Bankruptcy
According to the dictionary, the term bankruptcy is when a person or business declares legally that they cannot repay their financial obligations or debt to the creditors they borrowed from. Filing bankruptcy chapter 7 or 13 should be a last resort and used only if every other alternative has been explored. Bankruptcy has the ability to affect your financial life for years.
Filing bankruptcy Chapter 7 will haunt your credit score for up to 10 years.
Personal bankruptcy makes it harder to get a bank loan, home mortgage, or get approved for the best credit cards. But if your financials are completely devastated, then filing bankruptcy will give you protection from creditors and presses the reset button on your personal finances.
It can be a tough conversation, but if you have a family member who can help with your debt its worth considering. If thats not an option, below are some unassisted options to explore.
Debt Relief Alternatives To Bankruptcy
Bankruptcy has serious consequences. A Chapter 7 bankruptcy will remain on your for 10 years, and a Chapter 13 will remain for seven years. That can make it more expensive or even impossible to borrow money in the future, such as for a mortgage or car loan, or to obtain a credit card. It can also affect your insurance rates.
So itâs worth exploring other types of debt relief before filing for bankruptcy. Debt relief typically involves negotiating with your creditors to make your debts more manageable, such as reducing the interest rates, canceling some portion of the debt, or giving you longer to repay. Debt relief often works to the creditorâs advantage, too, as they are likely to get more money out of the arrangement than if you were to declare bankruptcy.
You can negotiate on your own or hire a reputable debt relief company to help you. As with , there are scam artists who pose as debt relief experts, so be sure to check out any company that youâre considering. Investopedia publishes a regularly updated list of the best debt relief companies.
Bankruptcy Impact On Home
The good news about bankruptcy and your home is that you wont lose it as long as you can make payments.
Remember that the purpose of bankruptcy is to give you a chance for a fresh start and its a lot easier to start over if youre not homeless. Thats why bankruptcy laws make homes exempt from creditors claims.
But only if you can make the payments.
If living in a house you cant afford is part of the reason youre filing bankruptcy, then yes, you could lose your home.
In Chapter 7, if you fall behind making payments, you could seek protection for your home by filing Chapter 13 to allow you time to catch up. Or, you may have to throw in the towel and let the bank foreclose on you.
In Chapter 13, its far more complicated, but you essentially return to the default status you were in before declaring bankruptcy. That means creditors who have claims against you can go after you for payment.
How To Get Student Loans Discharged In Bankruptcy
Student loans must pass an extra test in order to be wiped out in bankruptcy. Many courts use the Brunner test, named for a 1987 court case, to determine whether your loans present an undue hardship to you and any dependents. You can prove undue hardship by demonstrating that:
- Repaying student loans prevents you from maintaining a minimal standard of living for you and your dependents, according to your current income and expenses
- This will likely not change throughout the rest of the loans repayment term
- Until now, you have done your best, or made a good faith effort to pay off the loans
To file for bankruptcy, youll first complete a mandatory credit counseling course, then submit details about your debt and financial situation to the U.S. Bankruptcy Court. For a Chapter 7 proceeding, youll have to show that youre unable to pay the debts based on your means. A bankruptcy trustee will be appointed to handle liquidation of assets under Chapter 7, and the repayment plan under Chapter 13.
Youll have to take an additional step as part of the bankruptcy filing process in order to petition for your student loans to be cancelled. This is called an adversary proceeding, and it will request that the court determine you meet the undue hardship test based on the financial circumstances you provide in your petition.
The Chapter 13 Hardship Discharge
After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a “hardship discharge.” 11 U.S.C. § 1328. Generally, such a discharge is available only if: the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; creditors have received at least as much as they would have received in a chapter 7 liquidation case; and modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.
How Does Debt Consolidation Affect My Credit Score
While it can save you money, it might negatively impact your credit score at first. However, it will make managing your bills easier, as you will only have one bill to pay each month. This method is a powerful way to take control of your bills, pay off your debts sooner and simplify your payments.
Eventually, your will improve because you are paying off your debt with each monthly payment. Every month your lender is reporting to the credit bureaus that you are making your payments on time and living up to your obligations. This is a much better position to be in than your debts overwhelming you and not being able to afford your monthly payments.
Both Options Lead To Low Credit Score
Your credit score lowers every time you cannot pay debts each month. While having some debt is useful to build your credit, not paying it back each month is risky. Month after month of unpaid credit card debt will lower your score over time, whereas declaring bankruptcy will lower your score right away.
Through bankruptcy, however, more of your debt can go away, which can lead to improvements in your credit score over time.
Focusing On Some Debt Vs Lump Sum Debt
Debt relief programs tend to focus on one creditor or a small part of your debt. This may not be helpful if you have numerous credit cards or medical debt from various places. Through the U.S. Bankruptcy Code, you have the option to:
- Discharge multiple debts in Chapter 7 bankruptcy
- Create an effective repayment plan for all your debt in Chapter 13 bankruptcy
How Do I Declare Bankruptcy
You can go bankrupt in one of two main ways. The more common route is to voluntarily file for bankruptcy. The second way is for creditors to ask the court to order a person bankrupt.
There are several ways to file bankruptcy, each with pros and cons. You may want to consult a lawyer before proceeding so you can figure out the best fit for your circumstances.
Bankruptcy Or Debt Consolidation: Which Is Best For Me
Both filing bankruptcy and getting a debt consolidation loan have their places when it comes to gaining debt relief. Debt consolidation is the process of taking out a new loan that condenses a number of other existing loans, often making paying back your debt more manageable through a single monthly payment. Bankruptcy, on the other hand, is the government backed process of assigning your non-exempt assets over to a bankruptcy trustee in exchange for the clearance of your debt. Both bankruptcy and debt consolidation have their respective pros and cons so, bankruptcy or debt consolidation: which is best for me?
Debts That Are Difficult To Discharge In Bankruptcy
Student loans are notoriously difficult to discharge through bankruptcy; it is only possible if you can demonstrate undue hardship to yourself or your dependents, such as being unable to maintain a minimal standard of living. In some cases, a court may discharge part, but not all, of your student loan debt. If student loan debt is a major reason for your considering bankruptcy, contact your loan servicer first and see if itâs possible to negotiate a repayment plan that would work for you. In the case of federal student loans, for example, several repayment plans are available.
You cannot have income tax debts discharged without a special exemption, which can only be obtained by petitioning the bankruptcy court and explaining why you deserve relief. So if you have income tax debts that you cannot repay, then you may be better off consulting with a tax attorney to discuss your options before filing for bankruptcy.
In the case of federal taxes, for example, the Internal Revenue Service can offer several alternatives to people who are unable to pay what they owe. One is an offer in compromise, in which the IRS agrees to accept a lesser amount. The IRS may also arrange for a payment plan, or an installment agreement, that will allow you to pay your taxes over an extended period of time.