Whats The Difference Between Chapter 7 And Chapter 13
If youre considering filing bankruptcy, you should understand the options that are out there. Chapters 7 and 13 bankruptcies are the most used alternatives for individuals.
Chapter 7 bankruptcy is also known as total bankruptcy. Its a wipeout of much of your outstanding debt. Also, it might force you to sell, or liquidate, some of your property in order to pay back some of the debt. Chapter 7 is also called straight or liquidation bankruptcy. Basically, this is the one that straight-up forgives your debts .
Chapter 13 bankruptcy is more like a repayment plan and less like a total wipeout. With Chapter 13, you file a plan with the bankruptcy court detailing how you will repay your creditors. Some debts will be paid in full, while others will be paid partially or not at all, depending on what you can afford. Chapter 7 = wipeout. Chapter 13 = plan.
It Is Possible To Make A Fresh Start With Discipline And Focus
Chip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana. He has 8 years experience in finance, from financial planning and wealth management to corporate finance and FP& A.
What does life after bankruptcy look like? When you’re considering this move, it’s important to look ahead before you decide your next steps.
People can find themselves at a point where there is no chance they will be able to pay off the debts they have accumulated. For example, consider someone who has depleted all their savings and maxed out all of their credit cards due to medical problems and losing their job. Even with unemployment or a temp job, they might find that they can no longer make even the minimum monthly payments on their cards or keep up with their rent and car loan. That’s when a helpful option is talking to a bankruptcy attorney. Chapter 7 could turn out to be the logical next move.
Unfortunately, this situation is all too commonin fact, Mark Twain, Walt Disney, Elton John, and Henry Ford all filed for bankruptcy at some point in their lives. If you think bankruptcy could be looming for you as well, read on to discover what you can expect and what to watch out for after filing for personal bankruptcy.
Will Bankruptcy Affect My Future Employment
When it comes to applying for jobs and potential employment, no federal, state, or local government agency can consider your bankruptcy when deciding to hire you. Only private employers retain the power to do so.
Jobs that require you to deal with money tend to be warier about hiring those who have filed for bankruptcy. Its also important to note that those private employers tend to do credit checks on job applicants and filing for bankruptcy would appear on your .
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If I File For Bankruptcy How Will It Affect My Professional License
Even if your workplace canât retaliate against you for filing bankruptcy, itâs possible that your bankruptcy case will affect your professional life in other ways.
In general, every state has a licensing board that oversees administration of each professional license according to state law. This board will likely have a set of rules listing your responsibilities if you file bankruptcy, as well as your ability to practice in your field during and after your case.
Before you file bankruptcy, you should review the rules for your state to see how bankruptcy affects you. For some licenses, you may only be required to report your bankruptcy case to the local authority or state supreme court.
If you already have your license, youâll likely need to report your bankruptcy case, but the license probably wonât be revoked just because you file bankruptcy. However, you may be limited in what you can and canât do while your case is open. For example, lawyers and real estate agents might be prohibited from holding client funds in trust during the time the case is open. Checking your state rules will help you sort out limitations, if any.
On the other hand, if youâre in the process of applying for your license or need to renew your license, your case may or may not affect your license. The government units in charge of issuing and renewing licenses generally look at the overall picture from an applicant when making decisions about issuing licenses.
Cover Your Four Walls
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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How Long Do Bankruptcies Stay On Your Credit Report
The length of time that a bankruptcy filing stays on your credit report depends on what type of bankruptcy you filed. We took a look at Chapter 7 and Chapter 13, which are the two main types of consumer bankruptcies, and to see how their impacts on your credit score differ.
- Chapter 7 bankruptcy: Also known as liquidation bankruptcy, Chapter 7 is what Harrison refers to as “straight bankruptcy.” It’s the most common form of consumer bankruptcy and is usually completed within three to six months. Those who file for Chapter 7 will no longer be required to pay back any unsecured debt , like personal loans, credit cards and medical expenses, but they may have to sell some of their assets to settle secured loans. Chapter 7 bankruptcies stay on consumers’ credit reports for 10 years from their filing date.
- Chapter 13 bankruptcy: Harrison refers to Chapter 13 as the “wage earner’s bankruptcy.” This form of filing offers a payment plan for those who have the income to repay their debts, just not necessarily on time. About a third of bankruptcies filed are Chapter 13 . Those who file are still required to pay back their debts, but instead over a three-to-five year time frame. Chapter 13 bankruptcies stay on consumers’ credit reports for seven years from their filing date.
Q1 How Does The Trustee Decide To Sell My House
The trustee may or may not sell your home depending on its equity value. If its less than the exemption amount, then the trustee must not sell your house. If you have significant equity left, the trustee will sell it.
The goal of selling your property is to get funds that can be used to pay off your unsecured debts. If your home gets sold, the trustee must give you first the exemption amount before paying your debts to the creditors.
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Start To Rebuild Your Credit
During bankruptcy its important to start to build up what got torn down. To rebuild your credit you may need to obtain a credit card. Using it wisely will demonstrate to lenders that you can manage your money and are determined to slowly rebuild your flawed credit history.
If you find yourself racking up debt again, you should stop using your card immediately and start a repayment plan. If necessary, use a debit card or prepaid credit card until you can pay off your regular card. Keep in mind that the interest rate on any card for which you are eligible will likely be higher than on the average credit card.
What About Bankruptcy Crimes
The usual reason why a bankruptcy hurts someones immigration case is because the immigrant committed a bankruptcy crime.
Bankruptcy crimes are things like:
- Lying under oath
- Supplying false financial statements
- Omitting essential information or assets from your bankruptcy papers
Simply filing for bankruptcy because you have too much debt is not a bankruptcy crime, and so is not a basis to deny an immigration petition.
Bankruptcy crimes are very rare, however, and a good bankruptcy lawyer will make sure that you dont commit them.
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Bankruptcy: How It Works Types & Consequences
Bankruptcy is a legal process overseen by federal bankruptcy courts. It’s designed to help individuals and businesses eliminate all or part of their debt or to help them repay a portion of what they owe.
Bankruptcy may help you get relief from your debt, but it’s important to understand that declaring bankruptcy has a serious, long-term effect on your credit. Bankruptcy will remain on your credit report for 7-10 years, affecting your ability to open credit card accounts and get approved for loans with favorable rates.
Can I Get A Credit Card If I Declare Bankruptcy In Canada
No. Once you file for bankruptcy, you must hand over your credit cards to your trustee so they can be cancelled. Additionally, your credit rating will be negatively affected by your bankruptcy and Canadian credit bureaus will keep a note about your bankruptcy on your credit report for up to 7 years, depending on your province.
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The Final Steps Of Your Journey Towards Lasting Debt Relief
Getting all of your bankruptcy forms prepared and filed with the bankruptcy court is usually the most time-intensive process of a Chapter 7 bankruptcy. But that doesnât mean that your job is done. There are a few things everyone filing Chapter 7 bankruptcy has to do to successfully complete their bankruptcy case and receive a discharge. Letâs take a look at what you can expect will happen in your Chapter 7 bankruptcy.
Pay Filing Fee in Installment Payments
If you can’t pay the entire Chapter 7 bankruptcy filing fee and you don’t qualify for a fee waiver, then you can apply to pay the filing fee in installments. You can ask to make four installment payments. The entire fee is due within 120 days after filing.
If the bankruptcy court approves your application, it will grant an Order Approving Payment of Filing Fee in Installments. Your installment payment due dates will be in that order. You must pay all installments on time or your case is at risk of being dismissed.
Take Bankruptcy Course 2
You will complete a credit counseling course before filing bankruptcy. There’s a second course you must take after filing bankruptcy. It covers personal financial management and can help you take advantage of your fresh start after erasing your debts through bankruptcy.
You have to take this course after your case is filed but make sure itâs be completed within 60 days from the date of the meeting of creditors. A certificate of completion must be filed with the court.
The Bottom Line: You Are Responsible For Your Debts
The lesson to be learned from this post is simple: your debts are your debts only, and only you are responsible for them. This rule has big implications if youre preparing for bankruptcy because if you file without your spouse, your joint debt will become your spouses full responsibility.
In order to make the correct decision, make a list of the debts that are really holding you back. Are they primarily incurred in one spouses name? If so, it may be best for the heavily indebted spouse to file bankruptcy to preserve the others .
If, on the other hand, joint debts are your main problem, it will be necessary for both spouses to file in order to truly rid yourselves of debt.
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Bankruptcy May Help Relieve Your Debt Obligations But It Will Impact Your Credit For Years
Bankruptcy is a special legal proceeding you can use to reorganize or get rid of your debt, depending on your financial situation. Bankruptcy can be helpful if youre overwhelmed with financial commitments, but it could also negatively affect your credit. A bankruptcy will generally stay on your reports for up to 10 years from the date you file.
I refer to bankruptcy as kind of Armageddon on someones , says Freddie Huynh, vice president of data optimization for Freedom Debt Relief.
The good news is your credit can gradually heal if you take the right steps. Heres what can happen to your credit reports when you file for bankruptcy.
Applying For Credit After Bankruptcy
As it can be difficult to get credit after filing bankruptcy, your personal relationship with a lender can be crucial. Having employees or management at a bank, a , or an auto lender who know, trust, and like you makes it easier to get an application accepted.
You rebuild credit after bankruptcy the same way that you build credit before one: with time and a consistent repayment history. If you believe you can continue to repay a preexisting debt during and after bankruptcy, consider a reaffirmation agreement with one of your creditors to help the process of rebuilding your credit score.
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Chapter 7 Vs Chapter 13
Two forms of bankruptcy are available to individual debtors: Chapter 7 and Chapter 13. Chapter 7 involves a discharge of all debts the filer is no longer responsible for paying them. It allows the trustee to seize the debtors non-exempt assets and sell them to give the proceeds to his creditors.
Chapter 13 involves the debtor entering into a payment plan thats approved by the court to pay off his debts from his discretionary or extra income over the course of three to five years.
Negotiating With Other Creditors
While your mortgage is significant, its obviously not your only bill. Other lenders and creditors may work to negotiate with you if you can go through the process of proving hardship. If you can come to an agreement, you may be able to settle your debt, even if its less than what you owe.
It can be tempting to let unsecured debt default, but doing this will really hurt your credit score. Instead, we suggest working something out. Paying something may make a creditor more receptive to giving you some debt relief.
Theres still a credit ding that comes along with having an account thats paid as agreed rather than being paid in full, but its better than having an account that goes to collections or charge-offs. Some money is better than no money, and it does help lessen the effect on your credit score.
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What Is A Credit Rating
Your credit rating is derived from your credit file, which contains information about your credit balances, limits, and payment history , as well as personal details such as your occupation and employment history.
Canada’s largest credit bureau, Equifax, uses a simplified scale of R1 to R9R1 being a perfect scorewhile TransUnion measures credit scores on a scale of 300 to 900, with 650 generally considered to be the dividing line between good credit and poor credit. Declaring bankruptcy will likely reduce your credit rating to the lowest level.
Common Law Property States
If you live in a common law property state, your individual assets and your interest in any property you own jointly with your spouse are considered part of your bankruptcy estate. The property your spouse owns in his or her name alone is normally not at risk.
But keep in mind that in Chapter 7 bankruptcy, the appointed bankruptcy trustee may be able to sell the entire jointly owned asset if you can’t exempt the value of your interest and the property can’t be divided. If the trustee sells the property, he or she will pay your spouse the value of her interest and use your portion of the nonexempt proceeds to pay back your creditors.
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Joint Debts In Bankruptcy
Debt problems cause stress for the entire family. One of the common concerns is how will bankruptcy affect my spouse if I declare personal bankruptcy? Do creditors pursue your spouse? Will it affect their credit rating?
To understand how bankruptcy will affect your spouse, it is important to understand the difference between joint debt and personal debts.
Your bankruptcy only affects your debts. As long as your debts belong solely to you, then claiming bankruptcy should have no impact on your spouse or their credit rating, but sometimes the answer is not quite that simple.
If your spouse has not co-signed or guaranteed any of your debts then those debts belong solely to you.
However, if they have guaranteed or co-signed any of your debts, those debts are no longer just yours. Now your spouse will become fully liable if you file for bankruptcy. Your creditors will pursue your spouse for full payments, even though your bankruptcy will eliminate your responsibility to repay the debt.
In situations where you have significant common or joint debts, your spouse may need to declare bankruptcy if your spouse cannot afford to repay those debts on her own. It is possible to declare a joint bankruptcy or joint consumer proposal with your spouse. This can lower the overall cost of these proceedings for the two of you.
Does Filing For Bankruptcy In Canada Affect My Spouse
Filing for bankruptcy in Canada does not directly affect your spouse. Your debts are your debts only you are responsible for them. If you go bankrupt, your debts are discharged. Your husband or wife or common-law spouse is NOT responsible for your debts.
Many people believe that because you are married, your spouse is automatically responsible for your debts. This is not true. Often collection agents, when they are trying to collect from you, tell you that if you dont pay they will get the money from your spouse. This is a collection agency scare tactic they can only go after you for your debts.
The only exception is if your spouse has co-signed or guaranteed your debt. For example, if you took out a loan and your spouse co-signed for it, it is also legally their loan. If you both have a credit card on the same account, the credit card debt legally belongs to both of you.
Remember, your spouse is liable for the debt, not because they are your spouse, but because they have signed for the debt.
There may be an indirect impact on your spouse in the future if you try to obtain financing jointly As you rebuild your credit, you might not be eligible to co-sign a loan or obtain credit. Or, you may be subject to higher interest rates. This may affect your spouse if you jointly wish to apply for credit in your future.
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