Secured Debts Versus Unsecured Debts
Anyone can file for bankruptcy relief regardless of how small or large their debt is. When you file for bankruptcy, you are required to list all the debts you owe. The court does not consider all debt equally.
It recognizes two types of debtsecured and unsecuredas follows:
- Secured debts are those where the original loan was backed up with property or collateral. Common secured debt includes a mortgage or vehicle loan.
- Unsecured debts are those where the original loan was offered based solely on your credit. These typically include credit cards, medical bills, and other bank loans.
Your bankruptcy lawyer will explain how the court weighs each type of debt. He will also clarify which debts are dischargeable depending on the bankruptcy chapter you choose.
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Lets Take A Look At A Few Of Those Mistakes:
Failing to fully understand the credit card terms. Many post-bankruptcy debtors are so excited to receive credit card offers after their bankruptcy that they end up skimming over the terms of the credit card. This can result in signing up for credit cards which are stuffed with many fees and high interest rates.Placing irresponsible authorized users on their credit card account. Many post-bankruptcy debtors make the mistake of trying to help out friends and family by placing them on their credit card accounts as authorized users only to be left with a large bill after those people fail to pay.
Co-signing credit card accounts or other loans for friends and family with credit issues. Post-bankruptcy debtors must remember that if they are not paying their own bills their friends and family members are even less likely to pay a bill which was co-signed.
Failing to communicate with creditors early and often when they run into financial problems. Post-bankruptcy debtors are not immune to financial issues after their bankruptcy discharge. But when those issues do come up, they must make sure they communicate clearly and early with creditors.
Failing to get any creditor agreements in writing. As we mentioned in point #4, sometimes there are financial issues which require us to work something out with creditors. But post-bankruptcy debtors need to make sure that they get all agreements in writing.
Can You File Chapter 7 Against The Irs
One of the most common questions we get is can you file chapter 7 against the IRS, and the answer is often yes. To be able to discharge federal income tax debt, you must qualify based on the conditions mentioned above.
While you can file Chapter 7 for income tax debt, the same strategy will not work for payroll taxes. Additionally, rules on previously unfiled tax returns are not uniform and newer liabilities are unable to be resolved. A Chapter 7 bankruptcy cannot discharge tax liens recorded before filing.
Under this chapter, the debtor will receive an absolute right to discharge all of the debts that are included as part of the bankruptcy. However, taxpayers will not receive an absolute discharge for their tax debts. The following tax debts will not be discharged in a Chapter 7 bankruptcy:
- Tax debts for which no original returns were filed by the taxpayer
- Tax debts for which a return was filed within 2 years of the bankruptcy petition
- Tax debts based on returns that were fraudulently filed
- Tax balances that arose because a taxpayer was found to have willfully attempted to evade their tax responsibility
Other tax debts, including assessed penalties are dischargeable unless the event that gives rise to the penalty occurred within 3 years of the bankruptcy or relates to an underlying tax balance that is not dischargeable.
Chapter 7 is not the only way to handle bankruptcy and taxes with the IRS, so you should consider other chapters before filing.
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Different Types Of Bankruptcy
Different chapters of bankruptcy work differently. Depending on which one you file, you may be able to clear your IRS debt with bankruptcy.
There are several types of bankruptcy you can declare. The two main types are Chapter 7 and Chapter 13.
To more accurately answer the question: Does bankruptcy clear IRS debt? you need to understand how each type of bankruptcy works.
First, when you file, an automatic stay goes into effect. This means that debtors are no longer allowed to collect the debt until the process is over. This includes IRS tax debt.
You may be able to avoid declaring bankruptcy due to a huge tax debt. Its important to find a great tax attorney.
A few things to remember if you want to include IRS tax debt in bankruptcy:
- You must have filed taxes within 2 the past two years.
- You cant have purposely committed tax fraud to evade paying taxes.
- They must be wage-related or business income taxes.
- It must have been at least three years since your taxes that you are listing were due.
- Your tax bill must have been billed 240 days ago more.
Schedule A Free Consultation With A Florida Bankruptcy Attorney Today
If you are struggling under the weight of debt, you dont have to go through this alone. At Stiberman Law, our bankruptcy attorneys are dedicated to helping people determine if bankruptcy is the right choice for them as well as find financial freedom through bankruptcy and move forward with confidence. To schedule a free consultation, reach out to our office today at or fill out the form below to get started.
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Keep Your Credit Utilization Ratio Low
Another key credit score factor is your it accounts for 30% of your FICO Score. Your credit utilization ratio measures how much of your credit you use versus how much you have available. For example, if your available credit is $10,000 and you use $2,000, your credit ratio is 20% .
Although its often recommended that you keep your ratio below 30%, you may be able to rebuild your credit faster by keeping it closer to 0%.
You May Make Surplus Income Payments
When you file for bankruptcy, you must do the following:
- disclose to the LIT information about all of your assets and liabilities
- advise the LIT of any property that was sold or transferred in the past few years
- surrender all your credit cards to the LIT
- attend the first meeting of creditors
- attend two counselling sessions
- advise the LIT in writing of any address changes
- if required, attend an examination at the Office of the Superintendent of Bankruptcy and
- assist the LIT as needed in administering your estate.
You may be required to make additional payments to your LIT for distribution to your creditors.
In addition to paying the LIT’s fees, you may be required to make additional payments to your LIT for distribution to your creditors. These are called surplus income payments.
Each month during the bankruptcy process, you must submit a copy of your pay stubs and proof of other income to the LIT. The LIT then calculates your surplus income.
Surplus income is the part of your earnings that exceeds the amount of income a family needs to maintain a reasonable standard of living. This amount is set by the OSB annually. The larger your family, the more you are allowed to keep the more you earn, the more you are required to contribute.
In other words, if your household income exceeds the level set by the OSB, then you must make additional payments to your LIT during your bankruptcy.
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Should I File For Bankruptcy If I Have Medical Bills
- Chapter 13 and Medical Debt. If you don’t qualify for Chapter 7 bankruptcy, or you own assets that you might lose in a Chapter 7 bankruptcy, you can file for Chapter 13 bankruptcy. In Chapter 13, you’ll pay back the portion of the medical debt you can afford through your repayment plan. The court will discharge the remainder at the …
How Far Behind Are You On Payments
The first thing to consider is how far along you are in the process. If youve let a payment deadline or two slip but you have the financial means to get caught up, there isnt much to worry about. .
If you tend to miss payment deadlines theres a chance the credit card company will raise your interest rate. They can also apply late fees and other penalties. These can add up and lead to much worse problems, but you still have a chance to get back on track.
Once things progress beyond an occasional late payment, the credit card company might turn your account over to a debt collector. These are people who focus entirely on collecting payments and they tend to be very aggressive.
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What Bankruptcy Typically Looks Like
If you do end up filing for bankruptcy, there are generally two types that individuals file: Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy is all about selling anything valuable you own a second vehicle, a vacation home, collectibles, stocks, bonds to pay off your debts. Generally, this type of bankruptcy wipes out all of your outstanding debts once a judge approves your filing in court. The whole process typically takes about three to five months. Chapter 7 bankruptcies are best suited for those who cannot pay back all, or a significant portion, of their balances. Tadross says that he typically recommends clients file for Chapter 7 bankruptcy if they have an unmanageable amount of unsecured debt, such as medical or credit card.
A Chapter 13 bankruptcy, referred to as a reorganization bankruptcy, is designed for those with a regular income to create a plan to repay all, or part, of their debts in installments. It works well if you are so far behind on your home mortgage payments that you may be facing foreclosure or eviction. With this type of bankruptcy, you generally dont have to sell off your property to pay your lenders, but instead work to pay off your debts through a court-approved consolidated repayment plan that runs for a set period of time, typically three to five years. At the end of that period, any remaining unpaid debts are discharged.
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Explore Your Bankruptcy Options
Get the financial relief you are entitled to by filing for bankruptcy protection. Our team represents individuals and small business owners in Chapter 7 and Chapter 13 bankruptcy cases. We can also provide help filing for Chapter 11 reorganization bankruptcy and Chapter 12 bankruptcy for family farmers and fishermen.
We can help you through the petition and filing process. We can help you retain your assets when you choose Chapter 7 bankruptcy. We can even help you restructure financial debt through other bankruptcy filings with complex financial structures or extremely large debt loads. Call Farmer & Morris Law, PLLC to speak to a member of our client intake team and learn what happens if you declare bankruptcy today.
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Keeping Secured Property: Debt Reaffirmation
It is harder to discharge secured debt than it is to discharge unsecured debt. Furthermore, secured creditors may have some rights to seize property that “secures” an underlying debt. This can happen even after a discharge is granted. Securing a debt means your money is tied up in the property, such as a car.
Depending on individual circumstances, if you wish to keep certain secured property, you may decide to “reaffirm” the debt.
A reaffirmation is an agreement between you and the creditor that:
- You will remain liable for the debt
- You will pay all or a portion of the money owed
You can choose to do this even though the debt would otherwise be discharged in the bankruptcy.
In return, the creditor promises that it will not repossess or take back the automobile or other property â so long as you continue to pay the debt.
Exceptions To Payment Rules
There are some exceptions to the payment rules. You can make direct payments for:
- secured creditors, like a mortgage lender
- debts which are not included in the bankruptcy , these are called non-provable debts
- money owed after 19 March 2012 to the Department for Work and Pensions for budgeting or crisis loans
You must keep paying rent and any new debts after the bankruptcy. You might not need to pay bills that are unpaid at the date of your bankruptcy order. You may have to pay a deposit for future supplies of gas, electricity or other utilities. Or your utility accounts may be transferred to a spouse or partner.
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Chapter 7 Bankruptcy Doesn’t Clear All Debts
The discharge order won’t list the debts you wiped out in Chapter 7. Instead, it will list the debts that bankruptcy law says all filers remain responsible for paying. You’ll stay on the hook for the following:
You’ll find a more detailed list of nondischargeable debts in What Is a Bankruptcy Discharge? If you’d like more information about classifying debts in bankruptcy, consider reading Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority.
Filing Bankruptcy: The Cons
The first downside to filing for bankruptcy is that despite helping you out of debt, it will not eliminate all your debts. The following are some of the debts that will remain after filing for bankruptcy:
In addition, although you do get to keep your exempt property when filing for Chapter 7, you do lose your non-exempt property. Depending on your financial circumstances, this could include your house, cars, cash, stocks, and bonds.
Filing for bankruptcy also leaves a stain on your credit history for 10 years. It may be significantly more difficult to secure a loan in the future. Even if you do secure a loan or a credit card, you will more than likely have a significantly higher interest rate attached to it.
Finally, filing bankruptcy is not cheap. With filing fees, bankruptcy trustees fees, credit counseling fees, and attorney fees, the cost of bankruptcy can really add up.
If you have further questions about the pros and cons of filing bankruptcy, you should contact a knowledgeable bankruptcy attorney and set up a consultation.
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What Happens To Your Bank Account
When the bankruptcy order is made, you must:
- make sure you do not use your bank account
- give your cards and cheque books to the trustee
Your bank account will be frozen. Any money in your account will be an asset and claimed by the trustee. The trustee can ask to release some money:
- for your daily living needs
- to the other person in a joint account
The bank is allowed to use money from one of your accounts to pay your debts on another account you hold with them. This is called set off.
Otherwise, money owed to the bank is a bankruptcy debt, so you cannot pay this to the bank directly. The exception is if the bank has a charge on your home .
Open a new account
You can open a new bank account after the date of the bankruptcy order but you must tell the bank or building society that youre bankrupt. Some banks will let you use your old account after theyve spoken to the trustee.
Private Banks Student Loan Debt
Private student loans can be offered by banks. Some of the qualifications for a private student loan likely include: you must have been enrolled in an eligible school, meet credit and income criteria, be able to apply with a creditworthy cosigner, intend to use the loan for education, and meet citizenship, age and education. Student loans are some of the loans eligible to file for a bankruptcy case.
Filing Bankruptcy In Florida For Credit Card Debt
For many, bankruptcy is the best solution when credit card debt is out of control. You may be able to wipe out all the credit debt without even paying a portion of what is owed. However, bankruptcy is not right for everyone, you should consult with a bankruptcy lawyer in Tampa for advice about your specific case.
Bankruptcy Can Wipe Out Secured Debt
If you can’t afford a payment that you secured with collateralsuch as a mortgage or car loanyou can wipe out the debt in bankruptcy. But you won’t be able to keep the house, car, computer, or other items securing payment of the loan. When you voluntarily agree to secure debt with property, you must pay what you owe or give the property back .
Learn who can’t file bankruptcy Chapter 7 and must use Chapter 13 for bankruptcy relief.
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Grounds For Denial Of A Debt Discharge
The grounds for denying an individual debtor a discharge in a Chapter 7 case are narrow. They are construed against the moving party .
Among other reasons, the court may deny the debtor a discharge if it finds that the debtor:
- Failed to keep or produce adequate books or financial records
- Failed to explain any loss of assets
- Committed a bankruptcy crime such as perjury
- Failed to obey a lawful order of the bankruptcy court
- Fraudulently transferred, concealed, or destroyed property that would have become the property of the estate
- Failed to complete an approved instructional course concerning financial management
Your Creditors May Hold A Meeting
Sometimes, a meeting of creditors is required or requested. The purpose of this meeting is to
- allow creditors to obtain information about the bankruptcy
- confirm the appointment of the LIT
- appoint up to five inspectors to supervise the administration of your estate and
- allow creditors to give direction to the LIT.
If a meeting is called, you will be required to attend.
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