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How Bad Is Filing For Bankruptcy

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Bankruptcy Chapter 7 | Reasons Why Declaring Bankruptcy May Be A Very Bad Idea

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What Are The Effects Of Reaffirming A Debt

If you reaffirm a debt and fail to make the payments required in the reaffirmation agreement, the creditor can take action against you to recover any property that was given as security for the loan and you may remain personally liable for any remaining debt.

You can voluntarily repay any debt instead of signing a reaffirmation agreement. Reaffirmation agreements must not impose an undue burden on you or your dependents and must be in your best interest. If you decide to sign a reaffirmation agreement, you may cancel it any time before the court issues your discharge order or within sixty days after the reaffirmation agreement was filed with the court, whichever is later

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Unforeseen Life Events Can Cause Bankruptcy

If you can afford to pay off debt and file for bankruptcy instead, perhaps youve made a poor decision. Similarly, someone filing for bankruptcy with bad intentions or to defraud creditors is behaving poorly and cheating the system.

In a case like this, the peanut gallery would be correct: This type of bankruptcy is bad. But what about the family forced into bankruptcy after the breadwinner loses a job? What about the family who incurs enormous medical bills based on an unforeseen car accident? What about the ex-wife in a community property state who is left holding the bag on thousands of dollars of charged by her ex-husband without her knowledge?

In these cases, bankruptcy can provide tremendous relief and an opportunity to start over. Its easy for someone who hasnt experienced hardship to say that bankruptcy is bad, but talk is cheap and people have families to take care of.

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Will Filing For Bankruptcy Affect My Job

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You cant be fired for declaring bankruptcy. Your employer must have a valid legal reason for terminating your employment.

You may be wondering how your current employer would even discover your filing status. If your wages have been garnished, your employer will receive a notification of your bankruptcy petition. Because once you file for protection from your creditors, all collection efforts and wage garnishments stop.

When it comes to finding a new job, some employers will run a credit check on you but bankruptcy shouldnt be a determining factor for most types of employment even for a role that requires security clearance. Youre most likely to have an issue if you are applying for a position that requires handling money.

Being upfront with a potential employer about what they will discover on your credit report might help mitigate any issues.

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If You Need Bankruptcy Protection Make It Count

Theres a limit on how often you can apply for bankruptcy, which is why Tadross recommends his clients think very carefully about it before going that route. The danger of jumping into a bankruptcy head-first right now is that you may end up incurring more debt over the next few months. If that happens, and youve already filed, then you wont have a lot of options to wipe out your new debt.

If you file a Chapter 7 bankruptcy and receive a discharge of your debt, you cant file again for eight years. If you file for Chapter 13, youll need to wait six years before you can file for a Chapter 7 bankruptcy. If you want to re-file for Chapter 13 bankruptcy again, the waiting period is two years.

Its important to consider the timing. Will you see any benefit now? For example, if youre about to lose your home or your car is going to be repossessed, then filing for a Chapter 13 and stopping the immediate foreclosure may help. Several states and cities have halted foreclosures and those with federally-backed mortgages are protected for now, but many homeowners who arent covered by these measures.

If you just lost your job or were furloughed because of the coronavirus, but expect to be rehired once business resumes, then it may be best to wait, says John Rao, an attorney and bankruptcy expert with the National Consumer Law Center.

How Much And How Soon Credit Scores Can Rise

Using data from Equifax credit bureau, researchers at the Federal Reserve Bank of Philadelphia found that filers Equifax credit scores plunged in the 18 months before filing bankruptcy and rose steadily afterward.

Among the findings:

  • The average credit score for someone who filed Chapter 7, the most common type of bankruptcy, in 2010 was 538.2 on Equifaxs 280 to 850 range. By the time the filers cases were discharged, usually within six months, their average score was 620.3.

  • The other type of bankruptcy, Chapter 13, requires a three- to five-year repayment plan, which most people dont complete. Those who did and got a discharge, though, saw their scores rise from 535.2 to 610.8, the Philadelphia Fed researchers found.

A recent study by FICO, the company that created the leading credit score, found much smaller gains. Median credit scores for people who filed for bankruptcy between October 2009 and October 2010 rose from the 550s before they filed to the 560s afterward, says Ethan Dornhelm, senior director for FICOs scores and analytics group.

After two years, 28% of bankruptcy filers had scores of 620 and above. After four years, 48% had scores of 620 or above, and only 1% scored 700 or above.

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Is This As Bad As It Gets Financially

If theres any chance your financial situation could worsen in the future, Chapter 7 likely isnt your best option yet.

Those facing significant medical debts and dealing with ongoing health issues, or those who know the loss of a job is imminent often find themselves in this situation. Your best bet is to postpone filing for bankruptcy until your situation is just about as bad as it will get. Your other option is to file for Chapter 13 and eventually have it converted to Chapter 7 if and when you are no longer able to afford to make your payments.

To learn more about Chapter 7 bankruptcy or for help determining if filing would be good or bad for you, contact the Law Office of Robert M. Geller at 813.254.5696 to schedule a consultation.

What Is The Difference Between Default And Bankruptcy

The Pros and Cons of Declaring Bankruptcy

Defaulting on a loan means that youve violated the promissory or cardholder agreement with the lender to make payments on time. Each lender has its own requirements surrounding how many missed payments you can have before it considers you in default. In some cases, that may be as little as one missed payment or it can be as many as nine missed payments.

Filing for bankruptcy, on the other hand, is a legal process that involves listing out your debts and assets and finding a way to resolve the debts. A judge will decide if any of your debts can be discharged and if your assets will be used to pay off the outstanding balance. The judge will also decide which assets youre allowed to keep and which can be taken from you.

Default and bankruptcy usually go hand in hand. Many borrowers default on their loans and then subsequently file for bankruptcy.

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What Are The Benefits Of Filing Chapter 7

Most people find that filing for debt relief under Chapter 7 is a good thing. Some of the reasons that filing Chapter 7 is a good thing include:

  • Chapter 7 gets rid of debts quicker.

When you file bankruptcy under Chapter 7, you can get rid of your unsecured debts in as little as four to six months after filing. Chapter 7 is the quickest bankruptcy case.

An unsecured debt is money owed to a person or a company that is not secured by property. In other words, if you do not pay an unsecured creditor, that creditor cannot take your property without a court order. The creditor has to file a lawsuit and get a court order before it can try to take any of your property or money to pay the debt.

Examples of unsecured debts that you can discharge in a Chapter 7 case include credit cards, medical bills, personal loans, old utility bills, some old income tax debts, payday loans, and old rent or lease payments.

Some debts are not dischargeable in bankruptcy. Not dischargeable means that you cannot get rid of these debts when you file a bankruptcy case. Alimony and child support are two examples of debts that you cannot get rid of in bankruptcy. Student loans and most income tax debts are also not dischargeable in bankruptcy.

  • This is not a repayment plan like Chapter 13.

  • You get to keep your future income and property.

  • Chapter 7 stops creditor harassment and lawsuits.

  • You can qualify for loans and credit after Chapter 7.

When To Stop Digging A Hole You Cant Escape

Most of us feel we have a moral obligation to pay what we owe if we can. But typically that ship has sailed by the time people realize they need to consider bankruptcy. They can continue trying to chip away at debts they may never be able to repay, prolonging the damage to their credit scores and diverting money they could use to support themselves in retirement. Or they can recognize an impossible situation, deal with it and move on.

If you can pay your bills, obviously you should. If youre struggling, check out your options for debt relief. But bankruptcy may be the best option if your consumer debt the kinds listed above that can be erased equals more than half your income, or if it would take you five or more years to pay off that debt even with extreme austerity measures.

Heres what you need to know:

You need a bankruptcy attorney: Its easy to make a mistake in the complicated paperwork, and an error could cause your case to be dismissed. If that happens, you end up with no relief but still have credit scores tanked by the bankruptcy filing.

Dont wait too long: Theres a misconception that people file bankruptcy at the drop of a hat or when they still have other options. The reality for most is quite different. Some drain assets, such as their retirement accounts, that could have been protected from creditors in bankruptcy. People throw good money after bad until they have no money left to seek relief.

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The #1 Reason People File Bankruptcy: Unpaid Medical Bills

According to Snopes.com, the number one reason people file for bankruptcy is because of medical bills. Approximately 643,000 Americans filed bankruptcy because of medical debt each year.

If you have tens of thousands of dollars in unpaid medical debt that you could never pay off, it makes sense to file bankruptcy. Most people would say yes, but there is another option that is way better and cheaper!

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Can I Keep My Car

Pin on File Bankruptcy in Lynchburg Virginia

If you can continue to make payments on the car, its very likely you will be able to keep it. If you cant keep up with payments, then it depends on how much you owe what the car is worth and how much your state allows you to exempt. The amount varies from state to state and could be as low as $500. If your equity is higher than the exemption, the vehicle could be sold and youll receive the exempt portion. That is rare.

If youre behind on payments, there may be options that would allow you to keep your car. If these options work for you, great! If not, you may end up having the car repossessed by your lender.

Do your best to keep your car because buying a car after bankruptcy and getting a good deal on it is a tough task. Qualifying for a car loan will be the first hurdle. Once youve cleared that, finding a decent rate will be tough to come by.

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Is There Anybody In Particular I Should Contact About These Options

Yes. If you are behind on your payments, the collectors for each of your creditors may already be calling or writing you. You might be more successful if you phone each creditor, ask for the collection department, ask and note the name of the person you talk to, and explain your intent to repay the account and your need to stretch out the number of monthly payments and reduce their size. You might offer to come to the collection department office to discuss your situation. Ask each creditor to agree to a voluntary plan for the repayment of your debts.

Do I Want To Protect Any Property I Own

Most people who have significant assets choose to file for Chapter 13 bankruptcy instead of Chapter 7. Some property can be exempted in Chapter 7, but the limits are stricter.

Before filing for Chapter 7, consider what, if any assets youll want to protect and make sure doing so is an option. The last thing you want is to move forward with filing only to realize youll lose property thats important to you.

Its also important to work with an experienced bankruptcy professional to ensure any property you want protected is exempted in the proper way. Filing for bankruptcy on your own to save attorney fees can cost you a great deal in the long run if you end up losing assets unexpectedly.

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So Whats The Better Option Chapter 13 Or Chapter 7

That all depends on your particular situation. Obviously, the ideal answer is neither, but sometimes bankruptcy is unavoidable in the wake of medical emergencies or job loss. If you want to be able to keep all of your property, Chapter 13 might be your best bet, but there are cons to Chapter 13 bankruptcy as well. Chapter 7 has harsher consequences, but it might not deliver the financial relief you need.

You can also try to come up with a viable budget and stick to it. If you need help, there are nonprofit credit counseling agencies and debt management programs to get you back on track. They might be able to reduce interest rates and monthly payments to a level you can afford. Credit counseling is actually mandated with most bankruptcies, so you might as well get the treatment before you file.

If you stick to the debt management plan, you might not have to file for bankruptcy at all. Then the fear and mystery around filing for bankruptcy will vanish before it ever begins.

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Cover Your Four Walls

Chapter 7 Bankruptcy Pros and Cons in a COVID-19 World

When youre making a budget that will work for you right now, where do you start? Whats the main stuff you need to focus on covering? Start with what we call your Four Walls: food, utilities, shelter and transportation. These are the main essentials.

Keep everyone fed, the lights on, a roof over your heads, and gas in the car to get to work. If these Four Walls are only things you can pay for while youre getting out of debt, thats called survival mode, and that may be what you need to jump into right now.

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Collection Accounts Can Be Removed From Your Credit Report

Im sure youve heard of credit repair everyone has. But what is credit repair? Its not what you may think no attorneys are treating to sue collection agencies or using some genius loophole in the system. All credit repair is, is disputing negative accounts on your credit report with the Credit Bureaus.

The Credit Bureau has 30 days to contact the creditor and verify the accuracy of the account. If they cannot validate the item, it must be removed from your credit report entirely. Paying off collections doesnt help your credit score at all. But, having a collection removed from your report will have a positive impact on your score.

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