What Happens When You Declare Bankruptcy
As mentioned above, bankruptcy will remain on your credit reports for years into the future, and those reports may be consulted by potential lenders, insurance companies, landlords, employers, and others. You can’t do anything to remove the information ahead of schedule, but it’s worth checking to make sure that it’s accurate and doesn’t cast you in an even more negative light. You are entitled to at least one free report each year from each of the three major credit bureausEquifax, Experian, and TransUnionthrough the official, federally authorized website, Annual Credit Report.com. If you find any errors on a report, you should ask that that they be corrected.
Aside from your credit report, bankruptcy is also a matter of public record. So bear in mind that anyone can request a copy of the filing.
Because your credit is severely damaged by bankruptcy, you may find it difficult to borrow if you need to, including a loan to buy a car or a mortgage to buy a home. It will also be difficult to obtain a conventional credit card. One alternative is to apply for a secured credit card, where you deposit money with the card issuer to back up your line of credit. If you use the card judiciously, making all your monthly payments on time, you may soon qualify for a regular, unsecured credit card. A secured credit card is often recommended as a tool for rebuilding a damaged credit record.
Choose Your Debt Amount
Asking someone if you should file bankruptcy is not a simple yes or no question. Just about everyone will say: Only as a last resort!
In other words, only after you have gone over all other debt relief alternatives and still cant find a way out of this mess.
But be careful as you weigh your options. Bankruptcy takes a toll and its not just financial. There is a societal stigma attached to it. For some reason, American consumers view bankruptcy as a financial scar that marks you as a failure the rest of your life.
It is not that.
Bankruptcy is more like a financial scab, something that looks nasty for a while, but with care and attention, eventually clears up and fades away. Its a chance to start all over again. Thats the reason bankruptcy laws were written, to give people a second chance, not to punish them.
But first, weigh both sides of the issue before deciding.
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
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Debts From Unlisted Creditors Will Be Discharged
When you file for bankruptcy, you must list all of your creditors on your bankruptcy schedules. All debts that you list will be discharged at the conclusion of your case..
If you had assets or property which could be taken by the trustee in your bankruptcy, in the event that you forget to list a creditor or a debt on your schedules, the debt of the creditor that you did not list is still valid and enforceable even after the discharge is entered.
However, with a no-asset bankruptcy, many states and federal jurisdictions will still consider the omitted creditor’s debt as being discharged, even though you never listed it in the bankruptcy. Because the omitted creditor wouldn’t have received any money or property in the no-asset bankruptcy even if they were listed, many courts don’t require debtors to reopen or refile their bankruptcies to discharge debts that were not listed. The no-asset bankruptcy in effect discharges not just your listed debts, but even those that you did not list.
What If Your Assets Are Not Exempt
If you stand to lose property in Chapter 7 that you would like to keep, consider filing for Chapter 13 bankruptcy, which allows you to keep most, if not all, of your property. Or, in your Chapter 7 bankruptcy, you might be able to pay the trustee an equivalent amount in order to keep the property. This is obviously not an option if the property is worth quite a bit.
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Chapter 1: Business Reorganization
For a business, bankruptcy does not necessarily mean ruin. If it did, there would be three fewer major air carriers , two fewer car manufacturers , and no Marvel Universe.
Chapter 11 filings which surged during the coronavirus shutdown in 2020 allow troubled businesses to protect themselves from creditors while they reorganize their business operations, debts, and assets.
If all goes well, the business re-emerges a few years later oftentimes smaller, sleeker, more efficient, profitable and creditors have enjoyed a more satisfactory return than they would have if the business ended operations and was liquidated.
Sometimes, however, Chapter 11 buys only time. The reorganization plan fails, and liquidation results. The 2011 demise of Borders Books, once the nations No. 2 bookseller, is a prominent example.
Do I Qualify For Bankruptcy
Chapter 7 bankruptcy is designed for people who truly cant afford to pay their bills. Some people have income that is too high, and they dont qualify for bankruptcy. To qualify, you must earn less than the median income for a family your size in your state.
If your income exceeds the median income in your state, you could try to pass a means test in which a court trustee examines your income and reasonable expenses to determine whether you could pay these bills, or really do need the relief Chapter 7 bankruptcy provides.
The other option is Chapter 13 bankruptcy, which is known as the wage earners bankruptcy because it requires that you have a steady source of income and unsecured debts of less than $394,725 and secured debts of less than $1,184,200.
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Other Factors To Consider When Deciding To File Separately
Every financial situation is unique, and there may be factors that contribute to filing without the spouse. A spouse may wish to protect a good credit rating, or a spouse may not have been part of the debt that led to bankruptcy. Just like people, marriages are unique and many factors should be weighed when deciding the best way to approach bankruptcy.
How Chapter 7 Works
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities a schedule of current income and expenditures a statement of financial affairs and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling evidence of payment from employers, if any, received 60 days before filing a statement of monthly net income and any anticipated increase in income or expenses after filing and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.
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How Does Business Bankruptcy Work
When you file for business bankruptcy, your bankruptcy attorney will work with you to create an action plan. This plan will include a list of your companys assets and debts. It will also state how much money you can afford to pay back each month. This plan is called a reorganization plan, and its a crucial part of Business Bankruptcy because it states what you will pay back to your creditors. And Business Attorneys use this plan to renegotiate your debts with your creditors.
Choose Between Chapter 7 And Chapter 13
With chapter 7, much of your property is sold and used to pay off debts. Remaining eligible debts get discharged so you dont have to repay them.
A chapter 13 bankruptcy protects secured assets, halts collections, and lets you reorganize your debts, making timely payments on them for a period of either three or five years. If you catch up on back payments during the repayment period, youre allowed to keep your assets.
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An Increase In Income During Chapter 13
Chapter 13 bankruptcy is appropriate when you have a steady income and can afford to pay off your necessary expenses, yet you do not make enough to keep up with your debt. You can use Chapter 13 to retain some of your assets, but discharge all or a lot of your debts. The court will give you three to five years to pay your debts on a set schedule rather than the original rate determined.
The amount you are required to pay towards your debts is based on your income minus your necessary expenses, such as rent or a mortgage payment, utilities, transportation, food, and medical care. Essentially, you will pay all of your disposable income toward your liabilities. When you get a raise at work or a new, better paying job, this may need to be disclosed to the court. It can depend on the language of your bankruptcy plans. You should speak with a Cleveland bankruptcy attorney to determine whether you must or should tell the bankruptcy trustee about your higher income.
A greater income may require that you make higher payments toward your debt. This is usually true if it is a significant increase in income, such as if you obtained a new job after completing an educational program or if you started working a second job.
Filing For Chapter 7 Bankruptcy Without Your Spouse
Chapter 7 is considered a liquidation filing. In other words, nonexempt assets are sold to pay off as much debt as possible. Debt is discharged, and the filer lives with the hit on the credit report and score for the next 10 years.
A means test is required when filing Chapter 7 bankruptcy it basically determines if you qualify for Chapter 7. Its based on household income from six months before filing the petition. If the couple shares the same house, your spouses income must be included in the means test, even if you filed on you own. Expenses that do not benefit the household can be subtracted from the spouses contribution to the household income. More on that to come.
Once Chapter 7 is filed, an automatic stay is put in place. This legal action stops garnishments, foreclosures, repossessions and any debt collection lawsuit. But the stay only applies to the individual who files. If there is any joint debt shared by the couple, the spouse continues to remain responsible for that debt.
Its important to know if you live in one of the nine community property states. If so, the automatic stay extends to the community property of the couple that was earned or acquired during the marriage. This typically means the non-filers wages cannot be garnished for community debt in those nine states.
Once the Chapter 7 filing is discharged, the only person protected by the discharge is the individual who filed. The non-filing spouse remains liable for any joint or co-signed debts.
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Chapter 7 Bankruptcy Basics
Debtors who file for Chapter 7 bankruptcy can eliminate almost all of their debts once a discharge is entered at the end of the case. In return, debtors may have to give up some property so that the bankruptcy trustee can sell it and distribute the proceeds to unsecured creditors.
Because bankruptcy is supposed to provide you with a fresh start, and not leave you completely destitute, both federal and state law allow you to keep certain property — the laws that delineate which property you can keep are called exemptions. Some exemptions allow you to keep property no matter what the value others allow you to exempt up to a certain dollar value. For example, personal goods up to a certain dollar value, homesteads, amounts up to a certain value in a bank account, or retirement accounts, are all examples of exempt property.
The trustee can only take from you property which is not exempt, or which has a dollar value above the exemption limit provided by the law.
A debtor may also have property with value, but which also has a lien on it. A common example is a vehicle. If a debtor has a car loan and the balance of the loan is equal to or more than the value of the vehicle, the vehicle has no value to the trustee. In that situation, the debtor will be able to keep the car.
Increases In Income During Bankruptcy
When you are not able to handle your financial situation yourself, the court allows you to use Chapter 7 or Chapter 13 bankruptcy to restructure or get rid of some liabilities. By following through with this procedure, you can get out from under overwhelming debt and have a fresh start. While bankruptcy offers a great deal of hope for the future, it can be a complex and stressful process to get through. During bankruptcy, the court must have a full accounting of what you make and owe in order to approve this process and guide you through the necessary repayments. It comes as no surprise then that your actual income during a bankruptcy proceeding is important. If you experience increases in income during bankruptcy, this may alter your rights under the law or your required debt payments.
To handle this situation properly and ensure it does not hurt your future financial freedom, contact a Cleveland bankruptcy lawyer at Luftman, Heck & Associates right away at .
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Understanding Chapter 7 Bankruptcy Exemptions In Texas
Since I practice bankruptcy law in Texas, and 98% of the time I use Texas law to determine my clients exemptions, my comments are going to be directly specifically at Texas and Federal exemptions which I am allowed to use in Texas.
Under Texas and Federal exemptions, it is really hard to lose an asset in a bankruptcy.
The vast majority of the bankruptcies I have filed are no-asset Chapter 7 bankruptcies. That means I was able to exempt every asset the individual had, so they kept all of their property.
To determine if you qualify for a no-asset bankruptcy, you should speak to an experienced Chapter 7 lawyer who can review your individual circumstances.
For your reference, I typically only work on one to two asset cases a year. That should give you some perspective as to how rare asset Chapter 7 bankruptcies are in Waco, Texas where I practice.
Summary: What You Need To Know About Chapter 7 Bankruptcy Texas Exemptions
The take-home message is that most people who file bankruptcy are worried they will lose something. I hear questions like this all the time.
Will I lose my house in Chapter 7 bankruptcy?
Will I lose my car in Chapter 7 Bankruptcy?
Can I protect my retirement account in Chapter 7 Bankruptcy?
In Texas, you probably wont lose any of your assets as long as you hire an experienced bankruptcy attorney and you are honest with them.
Remember, if you are filing for Chapter 7 bankruptcy it is important that you list all of your assets. There are exemptions available and you may eligible for a no-asset bankruptcy but if you fail to disclose your assets, you risk losing them.
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Reasons To File For Bankruptcy
There are some circumstances in which filing for bankruptcy may be your best recourse:
- You’ve already tried to negotiate. Suppose that you have attempted to negotiate a repayment plan with one or more major , as experts often recommend as a first step, but they have not budged. They want their full payment and aren’t willing to be paid out over timeand you don’t have the means to make that payment. This can leave you with few options other than to file for bankruptcy.
- Your liabilities far exceed your income and assets. Another major reason some individuals file for bankruptcy is that they simply cannot pay their debts, and just servicing the debtthat is, making the required monthly paymentsexceeds the monthly income they generate. For example, consider someone who owes $500,000 to a bank and whose monthly mortgage payment is $4,000. If this person only has income of $2,000 a month, and another $25,000 in assets to draw on, they may have few other options than to file for bankruptcy. Otherwise, they will deplete their assets in about a year and be completely unable to make that $4,000 payment going forward.