Disadvantages Of Filing Chapter 7 Bankruptcy
If you do not qualify for a Chapter 7 bankruptcy because of your income level, you may still be able to file for a Chapter 13 bankruptcy. This type of bankruptcy is mostly known as a reorganization of debt rather than totally discharging or erasing your debt. While some people may think that the repayment plan is not beneficial for them, there are some advantages associated with a Chapter 13 bankruptcy. Of course, there are also disadvantages of filing bankruptcy under chapter 13.
1. Income-Level Qualification
In order to qualify for a Chapter 7 bankruptcy, you have to pass the bankruptcy means test. This means that your monthly income must be below the median family income in the state you are living in. It may be possible to still file for a Chapter 7 bankruptcy if your income is higher than the median level but you have to prove your inability to pay your creditors. For example, if your expenses exceed your income and there is no money left after paying all your bills.
2. Youll Lose Most of Your Valuable Assets
When you file for a Chapter 7 bankruptcy, you have to list down everything you own which will go into a bankruptcy estate and there will be a person appointed as a bankruptcy trustee who will decide to sell your assets to pay the creditors. So, what assets will a trustee sell? A trustee will sell assets that are non-exempt and can easily be sold for a significant amount of money.;
3. You Still Have to Pay Non-Dischargeable Debts
4. 10 Years on Your Credit Report
Can A Bankruptcy Attorney Help
A good bankruptcy attorney can help you determine if 1) bankruptcy is the best option for your situation, 2) if so, what type of bankruptcy would be most beneficial and 3) if you can avoid bankruptcy altogether and find a more suitable alternative. They will also guide you through the bankruptcy process and make sure any forms you fill out are done correctly to maximize the benefits of bankruptcy. If you have questions about bankruptcy, donât hesitate to give us a call at 630-324-6666.
About the author
Kevin OâFlaherty is a graduate of the University of Iowa and Chicago-Kent College of Law. He has experience in litigation, estate planning, bankruptcy, real estate, and comprehensive business representation.
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How Will Bankruptcy Affect My Social Security Payments
Social Security benefits aren’t considered as income when you file for bankruptcy, and may not be taken to repay your debt.
Social Security income also can’t be used to determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy in a means test. Plus, you can still apply to receive these benefits while you’re going through bankruptcy.
If a creditor tries to garnish your Social Security payments, you should challenge them in court. Both the law and repeated court rulings show that your Social Security benefits are protected exemptions.
A scenario that might affect your Social Security payments, however, is if you are self-employed and bankruptcy causes you to go out of business. Social Security retirement benefits are based upon how many years you are employed and pay Social Security taxes on your income. If you are employed for less than 10 years before you reach retirement age, you wont be eligible for Social Security retirement benefits.
However, this is a rare problem. You could also offset this problem by delaying the receipt of your benefits until you are older up to age 70.
Social Security disability benefits are also protected during bankruptcy. Filing for bankruptcy shouldn’t affect your ability to apply for these benefits either.
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What Happens To Social Security Disability Benefits In Bankruptcy
While Social Security Disability may help with finances, all too many times it falls well short of what you need to satisfy the financial commitments you were able to meet when you were working. If your debt becomes too large and debt settlement services are no longer an option, filing for bankruptcy protection may seem to be your only course of action. The question of how a bankruptcy affects your Social Security disability benefits is one that you need to consider carefully.
The Bankruptcy Code offers two options to individuals: a chapter 7 liquidation or a chapter 13 repayment plan. Social Security Disability benefits wont be lost as a result of filing under either a chapter 7 or chapter 13, but you will definitely need an experienced attorney who knows the proper procedures to ensure that your benefits are protected.
Filing A Second Bankruptcy When The First Was Dismissed
A second bankruptcy filing after your first case was dismissed does not prevent a discharge but affects whether and when you get the benefit of an automatic stay.
Whether you have waiting periods for an automatic stay depends on why your case was dismissed and whether you filed the last case under Chapter 7 or Chapter 13.
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Waiting Period For Multiple Bankruptcies
- Chapter 7 followed by Chapter 7 -Eight years;
- Chapter 13 followed by Chapter 13 Two years
- Chapter 7 followed by Chapter 13 Four years
- Chapter 13, followed by Chapter 7 Six years, unless you paid your unsecured debts in full in the Chapter 13 case, or you paid at least 70 percent of the claims filed by your credits in the Chapter 13 case, and you entered into the Chapter 13 plan in good faith.
All of these time periods begin to run from the filing date of the first bankruptcy case. The interval of eight years does not apply if you did not get a discharge in the initial Chapter 7 case.;
Retirement Accounts And Bankruptcy: Filing Before Versus After Retirement
Prior to retirement, the majority of retirement accounts are exempt from bankruptcy, and the amount in a given retirement account does not affect how Chapter 7 or Chapter 13 is calculated. However, if you have more than $1,362,800 in your IRAs combined any amount over that is fair game to creditors.
After retirement creditors will have a little more access to funds from your retirement accounts. Itâs not that they can suddenly take whatever amount from your IRA, 401k, or pension that is necessary to satisfy your debt, but they do have access to some of the money you are pulling from those retirement accounts. Ultimately, it depends on how much you need to meet your living expenses. When filing Chapter 7, anything you bring in from your retirement accounts that is above what you need to survive can be taken, and for Chapter 13 your monthly income from your retirement accounts will be factored into your 3 to 5-year repayment plan.
Social Security Benefits are handled similarly to retirement income in bankruptcy. Creditors cannot simply seize your social security benefits, but once the money has hit your bank account it could be fair game. However, there is some protection as banks are required to know if an account contains federal benefit payments before allowing money to be garnished through bankruptcy. Furthermore, at least two monthsâ worth of benefits must remain in the account. The safest bet is to keep all social security payments in a separate account.
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Filing For Chapter 13 Bankruptcy When Unemployed
Chapter 13 bankruptcy requires a repayment plan that pays back part of your debt. The advantage is you will have more time to pay back debt and keep secured debts, like your home mortgage or car loan. However, it can be difficult to prove you have the money to make these monthly payments if you do not have a job.
Unemployment benefits can provide some monthly income, but most of this is needed for bills and rent or mortgages. Suppose you have enough unemployment income or rental income to cover your current bills and pay back the repayment plan. In that case, you may qualify for Chapter 13, but this is rare.
The Role Of The Bankruptcy Trustee
Under either a chapter 7 liquidation or a chapter 13 repayment plan, a trustee is appointed to oversee the bankruptcy process and the repayment of creditors, if applicable. Some of your assets are available to the trustee, but some can be claimed as exempt. A trustee is not allowed to take exempt assets to pay off creditors. An attorney will help you determine what assets can be claimed as exempt, and will likely classify your Social Security disability benefits as exempt in order to prevent them from being viewed as income available to the trustee to pay creditors.
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Social Security Lump Sum Payments
If you receive a lump sum payment from Social Security prior tofiling bankruptcy, such as a retroactive payment, the funds are protected bythe same federal law that protects ongoing payments. However, they are alsosubject to the same standard when it comes to commingling funds. If youreceived a lump sum Social Security payment and deposited it into the sameaccount in which other funds are deposited, such as your income or a spouse’sincome, a trustee could argue that the funds have been commingled and are nolonger protected.
The bigger the potential payoff, the more likely it is that atrustee will try to argue that the lump sum belongs to the bankruptcy estate.If you received a substantial Social Security payment and it was commingledwith other funds, a trustee, who represents the interests of your creditors,has more to gain by trying to prove that the funds have lost their protection.
Again, keeping your Social Security benefits separate from allother funds will help you in the event that you need to prove to the court thatthey all came from Social Security and are protected. As with ongoing payments,if funds were commingled and your trustee does succeed in proving that thefunds are not protected by the federal Social Security exemption, you may beable to protect a portion of the funds with a cash-on-hand or wildcardexemption.
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What Happens To My Social Security And Disability Assets By Bankruptcy Type
If your assets are determined exempt, you dont have to use them as part of the bankruptcy process.
If you file Chapter 7 bankruptcy and your assets were commingled or otherwise found to be non-exempt, you may have to turn over that money. It will then be used to pay off your unsecured creditors as part of the bankruptcy process.
If you file Chapter 13 bankruptcy and your assets were commingled, you may have to use some of that money as part of your repayment plan.
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Don’t Commingle Social Security Money With Other Funds
When you declare that certain funds are exempt in bankruptcy , it’s your responsibility to prove your right to retain the money. Just because you claim that a portion of your bank account balance is exempt Social Security benefits doesn’t mean that the bankruptcy trustee will believe youespecially if you’ve mixed the benefits with other funds in the same account . Commingling makes it difficult to prove which funds are exempt.
Social Security Disability Benefits In Chapter 7 Bankruptcy
In a chapter 7 bankruptcy, the debtor turns over all non-exempt property to a bankruptcy trustee who converts the property to cash to make distributions to creditors. A chapter 7 bankruptcy is available to individuals who meet what is called the median income test, which was instituted in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act. Basically, the median income test compares your income to the median level of income for someone with a household of similar size to yours and in your state. If your income is equal to or less than the median level, you are eligible to file a bankruptcy under chapter 7. For the purposes of a chapter 7, Social Security disability benefits are not considered when determining your income level.
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Long Beach Social Security Attorneys
If you or a loved one is unable to work due to a disabling injury, medical condition or disease our skilled;and experienced lawyers are here to help you get the maximum Social Security Disability benefits for which you qualify.
The;Law Office;of Cantrell Green is a group of highly qualified and experienced disability attorneys who have obtained millions of dollars in Social Security Disability benefits for thousands of clients in Long Beach, Orange County;and the greater Los Angeles.;Our lawyers care about every client, and fight tirelessly to obtain the benefits you deserve.
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Factors For Retirees To Consider Before Filing For Bankruptcy
- You donât own much that can be taken in bankruptcy. In bankruptcy, creditors are only allowed to take certain things. For more detailed information check out our article on Illinois Bankruptcy Exemptions. Generally, creditors canât take things that are necessary to be a functioning member of society, such as household goods, a reasonably priced car, clothing, etc. They also canât take your protected retirement accounts or your Social Security funds. Many of these things make up a majority of what retirees and senior citizens own, so filing for bankruptcy isnât always necessary.
- You have too many assets that you donât want to lose. Maybe you have your first home and a second home mostly or completely paid off, or your source of income is protected under bankruptcy. If you file Chapter 7 bankruptcy you may risk losing one or both properties. Chapter 13 would result in a high monthly repayment in order to keep one or both of the properties.
- Donât count on the homestead exemption in Illinois, but in Iowa youâre golden. Unless you just recently bought your house and donât have much equity, the homestead exemption for bankruptcy cases in Illinois is capped at $15,000. That means if you have $200,000 in equity in your dwelling $175,000 is up for grabs by the creditors. Iowa exempts 100% of a debtorâs primary dwelling, regardless of the value.
The Bankruptcy Discharge And Child Support Payments
In an ordinary Chapter 7 bankruptcy case, many of your debts could be eliminated or discharged. For example, you could discharge most credit card debt, medical bills, and personal loans. A Chapter 7 bankruptcy was designed to provide people a fresh start.
Banks, businesses, and other entities will usually have to absorb discharged losses. However, a single parent is not in the same financial state and Congress understands this difference. As a matter of public policy, the burden placed on a parent who has not received their expected support payment is acknowledged. Our society has an interest, both practically and morally, to ensure that noncustodial parents abide by their court-order child support payments. Therefore, under the Bankruptcy Code, a delinquent parent is not permitted to eliminate their obligation to their child or the custodial parent by filing for bankruptcy. However, filing for bankruptcy often allows a parent who is behind in their child support payments a means to manage their past due obligations.
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Federal Law Protects Social Security Funds In Bankruptcy
By Cara O’Neill, Attorney
Social Security benefits are exempt and therefore protected in bankruptcy, so you can keep your Social Security benefits if you file for bankruptcy, regardless of where you live. However, it’s a good idea to maintain your benefits in a separate account because once commingled with other funds, it can be difficult to prove that the money came from Social Security benefits rather than another source.
Social Security Payments Are Treated As Income In Bankruptcy Filings
While your social security benefits will not be affected by your Chapter 7 bankruptcy filing, your eligibility for bankruptcy could be impacted by the amount of your monthly payments. This is because social security payments are treated as income for bankruptcy purposes.
However, if you are receiving social security benefits due to your disability or age, the monthly payments may not be considered income when filing for bankruptcy. This exception can help you qualify for bankruptcy debtors if you are currently receiving monthly benefits. It is also helpful that social security benefits are typically not treated as income that can go toward paying back the debtors creditors.
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Other Ways To Collect
If Social Security benefits are your only source of income, private creditors and debt collectors have limited options to get their money. They cant garnish your Social Security income and they cant levy your bank account as long as it only contains Social Security income that was put there via direct deposit.
But if you owe a substantial amount of debt, companies may not give up easily on attempting to collect. Just because Social Security makes up your only source of income doesnt mean that creditors and debt collectors dont have other means to try to recuperate the money you owe them.
Companies may opt to take other actions if they cant access your Social Security funds to collect a debt. These actions might include: