What Are The Negative Consequences Of Declaring Bankruptcy
While the main benefit of bankruptcy is the removal of certain debts, the negative consequences are quite damaging. The most obvious is an immediate large and negative impact on one’s credit score, and bankruptcy will remain on your credit report for 7-10 years. This means that it may be difficult, more costly, or even impossible to borrow money for things like a business or home. There is also the social stigma of bankruptcy, where people may equate it with a lack of character or untrustworthiness.
Who Should File Chapter 13 Bankruptcy
Many people think of bankruptcy court as the final stop on a path to financial ruin, the only option left when repaying debts seems impossible. But theres hope even in bankruptcy, and Chapter 13 of the federal bankruptcy code offers the closest thing to a soft landing.
Chapter 13 is sometimes called the Wage Earners Bankruptcy, and for good reason. Chapter 13 is bankruptcy for people who are making money but have fallen desperately behind trying to keep up with payments for things bought on credit.
Your debts are reorganized, and a program is set up to pay them. You should be able to keep your home after Chapter 13 bankruptcy as long as meet the requirements of the repayment plan established by the bankruptcy court.
Under Chapter 13, you have 3-5 years to resolve debts while applying all your disposable income to debt reduction. That means no-frills living, but the Chapter 13 option lets you eliminate unsecured debt like credit card payments, while you catch up on your mortgage payments.
Youll also be supervised by a court-appointed trustee who will collect and distribute your payments.
Consider Hiring A Non
Individuals who file for bankruptcy without the help of an attorney may use a non-attorney petition preparer to help with paperwork. The preparers cant give legal advice, answer questions about legalities or represent the filer in court. In fact, they are sometimes referred to by the court as a typing service, in order to make it clear that their job is to simply fill out forms at your direction.
Petition preparers charge a fee, which is regulated by the state. It can be anywhere from $100 to several hundred. They will sign the documents they prepare, including printing their name, address and Social Security number on the documents, and provide you with copies. You also have to sign them as the person who is filing bankruptcy.
Because petition preparers are not required to have any special training or bankruptcy knowledge, there are some who may try to take advantage of people who are attempting to navigate the bankruptcy process on their own. Federal law has provisions for bringing suit against a fraudulent petition preparer, but in the short-term hiring the wrong person can also mean that your case is dismissed or that you lose money.
Debt That Can’t Be Forgiven
While bankruptcy can eliminate a lot of debt, it can’t wipe the slate completely clean if you have certain types of unforgivable debt. Types of debt that bankruptcy can’t eliminate include:
- Most student loan debt .
- Court-ordered alimony.
- A federal tax lien for taxes owed to the U.S. government.
- Government fines or penalties.
Bankruptcy In The United States
There were 413,616 bankruptcy filings in the calendar year 2021. According to statistics released by the Administrative Office of the U.S. Courts, that is a decrease of 24% over 2020. Business bankruptcy filings fell 33.7% from 21,655 to 14,347 during the same period.
Filings decreased across the board. Chapter 7, once again the most popular form of bankruptcy fell to 288,327 from 378,953 in 2020.
Chapter 13 counted 120,002 filings , down from 156,377 the previous year. And Chapter 11 filings dropped from 8,333 to 4,836 in 2020.
The decrease in filings in 2021 does not surprise me, said Shawn Plummer, CEO of The Annuity Expert. Since the pandemic we’ve seen student loan moratoriums, pauses on rent, higher unemployment benefits , and other financial aid measures that were as unprecedented as a global pandemic.
Coupled with rock bottom interest rates, people have just had access to more funding than in the past. We may see bankruptcy rates rise this year, with the pressure inflation is putting on consumers.
Ed Flynn, of the American Bankruptcy Institute , found that 94.9% of Chapter 7 filings in his 2020 study were successfully discharged. Only 21,677 cases of the 442,145 cases completed in 2020 were dismissed.
Like the economy, filings in the U.S. rise and fall as evidenced in the statistics on bankruptcy. In fact, they are like dance partners where one goes, the other usually follows.
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What To Do After Filing For Bankruptcy
Bankruptcy is considered a fresh start. If you want to ensure that you take the best possible advantage of the new beginning after filing for bankruptcy, make sure you dont get into financial trouble again.
A top priority will be to rebuild your credit. While bankruptcy stays on your credit report for 7-10 years, you still have the power to improve your credit. Making on-time payments and not maxing out credit cards are key to a stronger credit score.
through a nonprofit credit counseling agency is a good step toward a more solid financial future. Nonprofit credit counselors are required by law to give you advice thats in your best interest and will review your budget and financial options going forward.
You dont have to wait until you file for bankruptcy to take advantage of credit counseling. Even if you are just considering bankruptcy, or looking for a way to pay down debt, talking to a nonprofit credit counselor can help with your financial planning and reviewing all the viable options.
Overview Of Bankruptcy Chapters
The Bankruptcy Code appears in title 11 of the United States Code, beginning at 11 U.S.C. 101. Its principal chapters are briefly outlined below:
Chapter 7 bankruptcy is a liquidation proceeding available to consumers and businesses. Those assets of a debtor that are not exempt from creditors are collected and liquidated , and the proceeds are distributed to creditors. A consumer debtor receives a complete discharge from debt under Chapter 7, except for certain debts that are prohibited from discharge by the Bankruptcy Code.
Chapter 11 bankruptcy provides a procedure by which an individual or a business can reorganize its debts while continuing to operate. The vast majority of Chapter 11 cases are filed by businesses. The debtor, often with participation from creditors, creates a plan of reorganization under which to repay part or all of its debts.
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Finalize The Remaining Chapter 7 Bankruptcy Forms
Once you get to this point, you’ll be able to take a breather because just four forms remain. The first three forms, along with the declaration and summary, are relatively innocuous and simple to complete:
The form deserving careful attention is Your Statement of Financial Affairs for Individuals Filing for Bankruptcy . The trustee will scrutinize your disclosures closely for signs of fraud and transactions that can be unwound.
On it, youll provide two full years of earnings and the amount earned in the current year. You’ll also provide information about creditor payments, property transfers, bank accounts, lawsuits, gifts, charitable giving, business interests, and more.
Chapter 7 Vs Chapter 13 Bankruptcy
In Chapter 13, you have a chance to keep all your stuff. In Chapter 7 bankruptcy, you probably can keep most of your necessary stuff , but will have to liquidate things deemed non-exempt by a bankruptcy trustee.
Thats the quick answer, though its not quite that simple.
With Chapter 7, you sell some or all of non-exempt things like your second car, any property you might own and things of value like art, stamp, coin or card collections. The process concludes within six months of filing. Any wages or property you acquire after filing, except inheritances, arent subject to distribution to creditors.
With Chapter 7, lenders who have already filed to foreclose on your home are only temporarily stalled, and other debts such as mortgage liens can be collected after the case is concluded. Cosigners on your debts are still obligated to pay.
Chapter 7 requires your income falls below the median level income for your state, or you must pass a means test. If you fail to meet the Chapter 7 income limit or means test requirements, Chapter 13 is the alternative.
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Life After Chapter 13 Bankruptcy
Chapter 13 can be useful for people with serious debts who worry about losing their homes to bankruptcy. If you adhere to your repayment plan, youll have a new lease on financial life.
Unsecured debts will be gone, but mortgages and car payments might linger. Hopefully, youll have developed the habits needed to meet those obligations.
Are There Advantages To Filing Chapter 11
The biggest advantage is that the entity, usually a business, can continue operations while going through the reorganization process. This allows them to generate cash flow that can aid in the repayment process. The court also issues an order that keeps creditors at bay. Most creditors are receptive to Chapter 11 as they stand to recoup more, if not all, of their money over the course of the repayment plan.
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The Chapter 13 Plan And Confirmation Hearing
Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. Fed. R. Bankr. P. 3015. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. Secured claims are those for which the creditor has the right take back certain property if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all “disposable income” – discussed below – to a five-year plan.11 U.S.C. § 1322.
Submit Documents To The Chapter 7 Bankruptcy Trustee
You’ll prove the accuracy of your bankruptcy petition information by providing the Chapter 7 trustee appointed to your case with financial documents. You can find out why the trustee will want bank statements, paycheck stubs, profit and loss statements, tax returns, and more by reading about the financial paperwork needed for proof in bankruptcy.
What Is All The Talk About ”means Testing” Under The October 2005 Rules
If your income is at or below Maine’s ”median income,” this new provision does not apply to you. If your income is over this amount, a creditor can choose to challenge your filing and ask the court to dismiss your case. If you are in this higher income bracket, you are advised again to get a lawyer if you can.
What Happens When You Declare Bankruptcy
Filing a bankruptcy petition automatically stays your creditors’ claims against you. This means that your creditors have to stop trying to collect the money you owe them. They will not be able to:
- Repossess your car
- Foreclose on your home
Your case will be assigned to a bankruptcy trustee, who is a lawyer who will oversee your case. The trustee will send notices to your creditors and schedule a hearing.
From there, the procedure depends on whether you’ve filed for protection under Chapter 7 or Chapter 13 of the federal Bankruptcy Code.
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Dealing With Your Car Loan
If you own a car that you still owe on, youâll have to let the bank and the court know what you want to do with it one one of your bankruptcy forms.
If you want to surrender the car to the lender and discharge the debt, you donât have to do anything other than stop making your payments. The bank will either file request with the bankruptcy court to ask permission to retake the car, or wait until your discharge is granted before picking it up.
If you want to keep the car, you can either reaffirm the loan or redeem the car. If youâre reaffirming your loan, the bank will send you a reaffirmation agreement after your case is filed. You have to complete and sign the agreement and return it to the bank within 45 days from your 341 meeting. The bank files the signed agreement with the court for approval.
To redeem the vehicle you have to file a motion with the court and, once granted, buy the car from the bank for its current value. This gets you out of having to pay the amount left on the loan, but payment has to be made in one lump sum.
Take A Debtor Education Course
Bankruptcy law requires that you take a second required bankruptcy course â a financial management course â after you file. The purpose of this course is to help you successfully manage your finances after bankruptcy. You must send your course certificate of completion to the court within 60 days of your 341 meeting. If you fail to do this, your debts wonât be discharged. This financial management course, just like the first credit counseling course, has to be from a state-approved provider.
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What Happens If I Declare Bankruptcy
When you declare bankruptcy, you will file a petition in federal court. Once your petition for bankruptcy is filed, your creditors will be informed and must stop pursuing any debt you owe. The court will then request certain information from you, including:
- The total amount of debt you owe
- A complete list of all your creditors
- An accounting of your total income
- An accounting of your outgoing expenses
You are permitted to represent yourself in bankruptcy court. You are also allowed to hire a bankruptcy lawyer who can serve as your advocate and help you navigate the complicated process of what happens if you declare bankruptcy.
Having your debt discharged or reorganized in bankruptcy court can take a lengthy period of time. Should you get a lawyer, your lawyer can help you understand the relevant timeline in your bankruptcy case.
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Filing Chapter 13 Yourself
It costs a little less to file Chapter 13 $313 but the process is more complicated.
People who file Chapter 13 have enough income to pay some of their debt, according to the court. Those who hoped to file Chapter 7 but didnt pass the means test often then file for Chapter 13.
The biggest difference between Chapter 7 and 13 is that debt isnt discharged immediately. Instead, the court approves a debt payment plan that takes 3-5 years. If you stick to the plan, the unsecured debt left over at the end is discharged.
The trustee assigned to you collects money from you according to the plan, then pays your creditors.
Nearly half of those who file Chapter 13 dont make it to the finish line, largely because they havent been able to keep up with payments. Of the cases completed or dismissed in 2021, 58% completed their plan, with 42% failing to do so. If your case is dismissed, you are back to where you were before you filed.
Its possible to go back to court and have the payment agreement modified to help, and about a quarter of those who were successful did that.
Because Chapter 13 is more complicated, most experts recommend hiring a bankruptcy attorney to help with the process.
Y City Employee Fired After She Was Caught In Vile Racist Rant
Party City filed for Chapter 11 bankruptcy protection after struggling with rising prices and a pullback in customer spending.
The company, based in Woodcliff Lake, NJ, said that its franchise stores, subsidiaries outside the US and its foil balloons Anagram business are not part of the restructuring and will remain core components of its business.
Party City Holdco said its more than 800 company-owned and franchise stores throughout North America will remain open, and customers can still shop on the company website.
The chain is planning an expedited restructuring that it said would substantially lower its debt and free up cash.
The company has secured a commitment for $150 million in debtor-in-possession financing. It said the financing, which is subject to court approval, would provide ample cash to continue operations.
Party City for years has faced growing competition from Walmart and Target and increasingly from occasion-based pop-up stores such as Spirit Halloween. That pressure has intensified in an era of rising prices, including for helium used in party balloons, and slowing consumer demand.
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