Make Sure You Are Eligible
There are qualifying standards that must be met before you can file for either Chapter 7 or Chapter 13 bankruptcy and it makes sense to do research to see what form of bankruptcy you are eligible for.
To be eligible for Chapter 7 bankruptcy, an individual must pass a means test that determines if their income is at or below the median income for their state. If not, they may have to file additional paperwork or switch to Chapter 13 bankruptcy.
To be eligible for Chapter 13 bankruptcy, an individuals unsecured debt must be less than $419,275 and secured debts of less than $1,257,850.
Four: Send Tax Return And Wage Information To The Trustee
After your case is successfully filed, the court clerk will assign a trustee to your case and set a meeting of creditors. At least 7 days before this initial meeting, you must send to the trustee:
- a copy of your most recent federal tax return or transcript
- evidence of all payments from employers, if any, received 60 days before filing
At the same time send a notice to the Bankruptcy Court clerk, verifying that you have provided this information to the Trustee.
If you fail to complete these steps, your case can be dismissed.
Tips:
- To protect your privacy, you may black out all but the last four digits of your Social Security number and private account numbers, as well as names and birthdates of children , that may appear on these documents.
- Any creditor may also request a copy of your tax return before you send it to the Trustee. So you will help yourself by sending this to the Trustee as soon as you can, before you get any creditor requests.
If you complete another tax return while your case is pending, you must file that with the trustee, as well.
Schedule H: Your Codebtors
If you have codebtors on any of your debts, you must list them on Schedule H. But keep in mind that your discharge only eliminates your liability for the debt. Not your codebtor’s. This means that your creditors can still go after your codebtors even after you file for bankruptcy relief.
For more information on how to protect your codebtors in bankruptcy, see How Will Bankruptcy Affect Joint Accounts and Cosigners?
Also Check: Can You Open A Checking Account While In Bankruptcy
If Youre Paying A Mortgage Or Have Liens
There are two main levers that will decide if you can hold onto your home if youâre filing Chapter 7 with a mortgage or liens against your home. The first is if youâre current with your mortgage. The second is your home equity, which again is what you get when you subtract your homeâs value from your mortgage/liens.
Is It Time To File Bankruptcy
Are you having a tough time economically? Do the bills keep piling up and you have no means to pay? Unemployment continues to be at an all times high and many homes are under foreclosure. Several businesses have closed and many people are in desperate economic shape. But, how do you determine whether or not to file bankruptcy? When is it time to admit enough is enough. Various factors go into determining whether a person should file bankruptcy and the experienced Bankruptcy Attorneys at Van Tubergen, Treutler & Hayes are here to help make this process a little less painstaking and achieve a fresh financial start! Contact us today for a free initial consultation! 616-844-3000
You May Like: Has Trump Filed Bankruptcy
Don’t Miss: Why Would You File For Bankruptcy
Alternatives To Chapter 7 Bankruptcy
Alternatives to bankruptcy may be able to help you get the fresh start you need. The one that’s right for you will depend on your financial situation and the types of debts you owe. Let’s go over each option.
Debt Settlement:You can negotiate with your creditors. If you’ve fallen behind on payments or are about to, you can contact your creditor to discuss the issue. You may be able to work out an affordable payment plan or negotiate a debt settlement for less than the full amount owed. This is especially true with credit card debt. Typically, a settlement needs to be paid in a lump sum.
Repayment Plan: Entering into a debt management plan with an agency is another option. Unlike in debt settlement, a debt management plan involves paying back your debt over time on more doable terms than you have now. Typically only unsecured debts can be included in a debt management plan.
Debt Consolidation: Taking out a debt consolidation loan to pay off your debts is another debt relief option. You would then have only one monthly payment to make to the new creditor. These loans often offer lower interest rates than what you’re already paying.
Another option is selling your valuable property to pay back creditors. But be careful. The money you get for your property may not be enough to pay off or settle all of your debts. You may end up having to file for bankruptcy anyway.
When To File Chapter 7 Bankruptcy
Filing for bankruptcy may well be the right choice. But the successful discharging of your debts will weigh heavily on your financial future for several years. Dont be hasty. Make certain you have scrutinized the five warning signs before you make your final choice.
It is a common misconception that individuals and couples should file Chapter 7 bankruptcy at the first sign of trouble, says Sumeet Sinha, founder and CEO of finpins.com, a personal finance blog and educational resource. You may consider Chapter 7 if creditors are harassing you, garnishing your wages and bank accounts and you have no way to pay off the debts. You may consider Chapter 7 as a last resort after your best efforts to pay your debts fail.
Five strong signs that indicate filing for Chapter 7 may be the correct remedy include:
You May Like: How To Get Approved For A Car Loan After Bankruptcy
How Can I File Chapter 7 And Keep My House
Upsolve is a nonprofit tool that helps you file bankruptcy for free.Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we’ll never ask you for a credit card.Explore our free tool
In a Nutshell
If after careful research you determine that Chapter 7 bankruptcy is the right choice for your circumstances, you may be wondering if itâs possible to wipe away credit card debt and other unsecured loans, but hang on to your house. The short answer is, it depends. Read on for more information about how filing Chapter 7 bankruptcy might affect your mortgage and property rights.
Written byKrishna Patel. Legally reviewed byAttorney Andrea Wimmer
You may have heard that filing bankruptcy means youâll lose everything, but bankruptcy laws provide some protection for property and personal items. Bankruptcy is meant to help give you a fresh start, not to make you start over with nothing. That said, itâs absolutely normal to worry about how your living situation will be affected, especially if you own your home. In this article, weâll help you understand how your house might be impacted by a Chapter 7 bankruptcy filing.
You May Keep Your Home Car And Much Of Your Personal Possessions In Most Cases
- Notice we said, you may keep, not you will keep. There are limits, conditions, and restrictions on the amount of your value in this property to keep it. Fortunately, a bankruptcy attorney knows alternatives and work-arounds to these limits. In all likelihood, with the help of a bankruptcy attorney, you will keep your home, car, and personal possessions.
Also Check: What Percentage Of Bankruptcies Are Caused By Medical Bills
How Do You File Chapter 7 Bankruptcy
You can probably complete the process within six months. You’ll have to follow several steps.
You must complete pre-file bankruptcy counseling from a qualified nonprofit credit counseling agency within 180 days before filing.
Find an attorney:Before diving into the various forms required to file Chapter 7, find a qualified bankruptcy attorney to help. Its hard to find money for a lawyer when you need debt relief, but this is not a DIY situation. Missing or improperly completed paperwork can lead to your case being thrown out or not having some debts dismissed.
File paperwork: Your attorney will help with filing your petition and other paperwork. But its on you to gather all relevant documentation of your assets, income and debts. An automatic stay goes into effect at this point, meaning that most creditors cannot sue you, garnish your wages or contact you for payment.
Trustee takes over: Once your petition is filed, a court-appointed bankruptcy trustee will begin managing the process.
Meeting of creditors: The trustee will arrange a meeting between you, your lawyer and your creditors. Youll have to answer questions from the trustee and creditors about your bankruptcy forms and finances.
Your eligibility is determined: After reviewing your paperwork, the trustee will confirm whether youre eligible for Chapter 7.
Education course: Before your case is discharged, youll have to take a financial education course from a qualified nonprofit credit counseling agency.
What Is An Automatic Stay
After you file for bankruptcy, you have the protection of an immediate, but temporary, automatic stay. The automatic stay can, for example, immediately stop a foreclosure, an eviction, car repossession, or wage garnishment. It can also stop debt collection, harassment, and disconnection of utilities.
The automatic stay may provide a powerful reason for filing for bankruptcy. In most of the situations listed above, the automatic stay can buy you a few days or weeks in which to figure out your next move. If your primary motivation in filing bankruptcy is to gain the benefits of the automatic stay, you donât need to file all of your papers at once. You just need to file the three-page petition, a signature declaration, and a listing of your creditors. In addition, within 180 days prior to filing, you will have to visit an approved credit counseling agency for advice and budget analysis. You will have to file a certification of such counseling when you file your petition. You have 15 days in which to file the rest of your papers. If you donât, your case will be dismissed.
Also Check: What Happens To Credit When You File Bankruptcy
What Is Chapter 7 How Does It Work
In a Chapter 7 bankruptcy, youâll fill out forms about what you earn, spend, own, and owe and submit these forms to the bankruptcy court. Youâll also submit recent tax returns and pay stubs, if youâre employed.
A bankruptcy trustee will review your forms and documents. They’ll also hold your 341 Meeting of Creditors, where theyâll ask you basic questions about your financial situation.
A couple of months later, youâll get a notice in the mail from the court letting you know that the court has granted you a bankruptcy discharge. The vast majority of people who are honest, fully fill out their bankruptcy forms, and complete the required steps get their bankruptcy petition accepted by the court and their eligible debts erased.
Bankruptcy And Second Mortage
Because of the recent decline in home values, many second and third mortgages are no longer secured by the homes value. For example, if your home is now valued at $150,000 and you have a first mortgage balance of $150,000 and a second mortgage balance of $25,000, your home secures the first mortgage but there is no longer any equity to secure the second mortgage. Heres what happens to those mortgages when you file for bankruptcy protection.
If you have filed a Chapter 7 bankruptcy, the discharge received will eliminate your personal liability on the second mortgage but will not eliminate the lien. If you filed a Chapter 13 bankruptcy, you can eliminate both your personal liability and the lien by a procedure called lien stripping. The basic rule here is that you can eliminate a lien that has no security in the home, but you cannot eliminate a lien if any part of it is secured by the homes value.
For example: Assume your home is worth $175,000 with a first mortgage balance of $170,000 and a second mortgage balance of $20,000. The second mortgage cannot be stripped because it is secured by at least $5,000 of the homes value.
Recommended Reading: How To Apply For Credit Card Debt Forgiveness
What Is A Means Test
A means test is a formula that determines whether you have the means to pay your debts or dont have the means and are eligible to file for Chapter 7 bankruptcy.
You determine your current monthly income by averaging your monthly income over the six months prior to filing for bankruptcy. If it less than the median monthly income of your state, you qualify for Chapter 7.
Median income varies quite a bit. According to a 2019 U.S. Census Bureau report, Maryland has the highest annual median income at $83,242. West Virginia had the lowest at $44,097.
If your median income exceeds the state average, you can still qualify for Chapter 7 bankruptcy. Thats because you are allowed to deduct certain expenses from your income total.
If your monthly income still exceeds the state average, you will have to file for Chapter 13 bankruptcy.
In a bit of relatively good news for people wanting to file Chapter 7 bankruptcies, the money they get from coronavirus CARES Act passed in March 2020 does not have to be included in determining eligibility.
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.
You May Like: Can You File Bankruptcy On Your Own
Chapter 7 Bankruptcy Forms Explained
Upsolve is a nonprofit tool that helps you file bankruptcy for free.Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we’ll never ask you for a credit card.Explore our free tool
In a Nutshell
The Chapter 7 forms packet consists of a voluntary petition, schedules, and statements. The term âpetitionâ is often used to describe the set of forms individuals filing for bankruptcy submit to the court. Here’s a walk through of all of them.
Written byAttorney Andrea Wimmer.
To file Chapter 7 bankruptcy, you have to submit the Chapter 7 bankruptcy forms to the court. There are about 23 official forms that are the same in Chapter 7 cases filed anywhere in the United States. Most bankruptcy courts also require certain local forms .
The Chapter 7 forms packet consists of a voluntary petition , schedules, and statements. The term âpetitionâ is often used to describe the set of forms individuals filing for bankruptcy submit to the court.
Drawbacks Of Chapter 7 Bankruptcy
Before you decide to file, there are several drawbacks of Chapter 7 bankruptcy to be aware of.
- You may have liens placed against your property. A lien gives your lender a stake in your property. If the property is sold, the lender can be paid from the earnings.
- You may lose property. Your property may be sold in order to pay creditors.
- Your credit may be damaged. Derogatory public records, including bankruptcies and foreclosures, included in your credit reports have the potential to reflect poorly on your credit and can hurt your ability to qualify for new loans.
You May Like: How Long Before My Bankruptcy Is Off My Credit Report
Is Filing Bankruptcy The Best Option For You
Because every personâs financial situation is unique, only you can decide if filing bankruptcy is your best option. Consider your financial goals. Do you want to reorganize a car or mortgage loan or do you simply want to eliminate debt and get a fresh start?
There are positive and negative consequences of filing bankruptcy. For example, the automatic stay will allow you to regroup and get some relief from your creditors, but missing payments on your credit cards and loans will affect your credit report. Also when you file bankruptcy, your will take a hit. But most bankruptcy filers rebuild their scores and are better off in the long run than those who donât file.
Also, filing bankruptcy can cost you money, especially if you opt to hire a lawyer. Upsolve offers a filing tool to help you file Chapter 7 bankruptcy for free.
