Should You File Chapter 7 Bankruptcy If You Don’t Have Much Debt
Ultimately, it’s up to you. If you’re on the fenceor even if you’re notconsider the following questions:
- Can you negotiate with creditors to pay less? If you can settle with all of your creditors, it could be a good option. However, keep in mind that you’ll be assessed tax on any forgiven amount over $600. By contrast, debt discharged in bankruptcy isn’t taxed.
- Can you pay back the amount you owe? Many people can pay back $10,000 or less. Even so, exceptions exist. Bankruptcy might offer a quicker way to rehabilitate your credit and fix your finances if you don’t think you’ll ever be able to repay your debt. Plus, the automatic stay stops collectors.
- Do you want to work with a credit counseling agency and pay less over time? This approach lets you pay far less in interest and pay off accounts in about five years. However, debt settlement agencies work primarily with major credit card companies, and after you finish paying, you’ll have to rebuild your credit. You’d likely get to the same place faster through bankruptcy, and it could cost significantly less.
Your Home And Chapter 7 Bankruptcy
Although filing for Chapter 7 bankruptcy can delay a foreclosure for weeks or even months, that is not a guarantee. Unlike a Chapter 13 bankruptcy, it offers no way for borrowers to get current on their past-due mortgage payments. In the long run, it doesnât permanently stop a foreclosure sale. It only delays it.
If youâre current on your mortgage but still need debt relief because of other financial problems, filing a Chapter 7 bankruptcy may be helpful. You may be able to protect your home if your state provides a homestead exemption, as most states do.
When Is A Bankrupt Discharged
There will be an automatic bankruptcy discharge for a first-time bankrupt nine months after they became bankrupt unless the trustee recommends a discharge with conditions or it is opposed by either a creditor, the trustee or the Superintendent of Bankruptcy. In addition, if you have surplus income of more than $200 per month, your bankruptcy will be extended to 21 months in the case of a first bankruptcy.
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The Means Test For Chapter 7
Whether to file for Chapter 7 or Chapter 13 is not your decision alone. The courts also impose a means test to determine whether you are eligible for Chapter 7. The means test first compares your average income over the previous six months with the median income for a household of your size in your state if you earn less than the median, you should be eligible for Chapter 7.
Even if your income is higher than the median, you may be eligible after subtracting certain allowable expenses. But if the calculation shows that you’d have enough disposable income left over to begin repaying your debtsrather than having the slate simply wiped cleanthe court may decide that Chapter 13 is your only option. To help determine your eligibility, you will be required to fill out this 122A-2 Form.
Getting A Lawyer To Help You With Your Bankruptcy
Bankruptcy is a specialized area of law that is very complex. And the issues are not always apparent or simple. The bankruptcy laws changed in October 2005 to discourage many people from filing for bankruptcy. So the law became more complicated. And there are more situations where a mistake can result in your case getting dismissed. If your case is dismissed, the bankruptcy court often imposes a penalty of 180 days before you can refile, and in this time period a lot can happen. This is why it is so important to have a lawyer advise you and help you with your bankruptcy.
Find a lawyer who can help you work through the issues, alternatives you may have, and consequences of your choices.
- Pick a lawyer with whom you are comfortable, one who will allow you to ask questions and give you responses that you can understand.
- Pick a lawyer who either specializes in bankruptcy or does a large part of his or her practice in the field.
- Ask questions until you understand what your choices are.
- Don’t be afraid to interview a lawyer and leave without hiring him or her.
If you decide to represent yourself in bankruptcy court, read a guide for Filing for Bankruptcy Without an Attorney.
To find a good bankruptcy lawyer:
- Check state bar groups and specialization/certification programs for bankruptcy lawyers in your community.
- Ask other lawyers or tax preparers you know for recommendations.
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Talk To A Financial Coach
You dont have to walk this alone. Read that again: You dont have to walk this alone. Get with a financial coach and talk about your situation. They arent here to judgetheyre here to help.
A financial coach can help you figure out a personalized plan of action for your specific situation. And yes, talking about money can be terrifying, but if you declare bankruptcy, your financial privacy will be out the window immediately. Opening up to a trustworthy financial coach now can help you avoid having to open up to a whole courtroom of people in bankruptcy.
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Role Of The Case Trustee
When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtor’s assets are exempt or subject to valid liens, the trustee will normally file a “no asset” report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases. But if the case appears to be an “asset” case at the outset, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002. A governmental unit, however, has 180 days from the date the case is filed to file a claim. 11 U.S.C. § 502. In the typical no asset chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a chapter 7 case who has a lien on the debtor’s property should consult an attorney for advice.
Which Type Of Bankruptcy Should I File
Have you found yourself in financial hardship? Are you wondering how you can get out of it? Well, if you’ve done any research regarding how to free yourself from the shackles of a financial pickle, your searches probably led you to bankruptcy. But the matter of bankruptcy can be complex. Which type of bankruptcy should you file? If you’re in New York and on the fence about which bankruptcy chapter is best for you, continue reading the article below and contact Law Office of Simon Goldenberg for a free consultation today.
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Bankruptcy Won’t Eliminate All Your Debts
You won’t necessarily be able to shake off all your debts in bankruptcy. For example, Congress has determined that certain types of debtsuch as child support and taxescan’t be discharged in bankruptcy for public policy reasons. Student loans can also be difficult to discharge in bankruptcy unless you can prove there’s an undue hardship.
Whether or not a debt can be eliminated in bankruptcy can also depend on whether the debt is secured or unsecured. Secured debts are backed by “collateral” property. Examples of secured debts include a mortgage or car loan. Generally, if you default on a secured loan, the creditor can take the “collateral” . With an unsecured debt, there’s no property specifically tied to the debt that a creditor can take if you don’t pay what’s owed. Examples of unsecured debts include credit card balances, medical bills, and certain personal loans.
In bankruptcy, secured creditors retain the right to collateral and, therefore, can still take the property connected to the loan. On the other hand, unsecured debt can be wiped out in bankruptcy. There’s no collateral that the creditor can grab on to and repossess.
Can You File Bankruptcy On Student Loans
Can You File Bankruptcy On Student Loans?
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If you need solutions for your student debt:
Its a common misconception that you cant file for bankruptcy for student loans. It is possible to discharge student loans in bankruptcy, but its more difficult than wiping out most other debts.
Federal student loans are less likely to be discharged in bankruptcy due to their repayment options and strict standards around undue hardship.
But private student loans dont offer the same repayment options or protections as federal ones. There are also signs bankruptcy for private student loans is getting easier.
However, because of the potential costs and financial impact of bankruptcy, examine your debt relief options before making a decision.
Heres how filing bankruptcy for student loans works, and how to determine if this is the right choice for you.
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Advantages And Disadvantages Of Bankruptcy
If you’re trying to decide whether you should file for bankruptcy, your credit is probably already damaged. But it’s worth noting that a Chapter 7 filing will stay on your for 10 years, while a Chapter 13 will remain there for seven. Any creditors or lenders you apply to for new debt will see the discharge on your report, which can prevent you from getting any credit.
Bankruptcy Is A Powerful Tool For Debtors But Some Kinds Of Debts Can’t Be Wiped Out In Bankruptcy
By Cara O’Neill, Attorney
If you’re facing severe debt problems, filing for bankruptcy can be a powerful remedy. It stops most collection actions, including telephone calls, wage garnishments, and lawsuits . It also eliminates many types of debt, including credit card balances, medical bills, personal loans, and more.
But it doesn’t stop all creditors, and it doesn’t wipe out all obligations. For instance, you’ll still have to pay your student loans and arrearages for child support, alimony, and most tax debts. Read on to learn more about:
- what you can expect in both Chapter 7 and Chapter 13
- the benefits offered by Chapter 13 alone, and
- things that can’t be accomplished by filing for bankruptcy.
If you’d like step-by-step guidance through the bankruptcy process, read What You Need to Know to File for Bankruptcy in 2021.
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Erasure Of Certain Debts
In Chapter 7 bankruptcy, you are freed from debts such as credit card debt, your personal liability on secured debts, personal loans and other unsecured debts, unpaid utilities, and some older tax debts. Although some debts such as alimony, child support, court fees, and recent tax debts cannot be discharged, the forgiven debts can help reduce the amount you have to pay back.
Bankruptcy Is Complicated And Expensive
Since bankruptcy forms and schedules are complicated, you should seriously consider hiring an experienced bankruptcy attorney to complete them. You don’t want your case to be dismissed because the forms are filled out incorrectly. Plus, the success rate for bankruptcy cases filed without an attorney is low.
If you choose not to hire an attorney, but misunderstand the law or make a mistake, it can affect your legal rights. You might, for example, end up losing property that you mistakenly thought you could keep. You can’t count on bankruptcy court employees and judges, eitherthey aren’t allowed to offer any legal advice.
To find a bankruptcy lawyer in your area, try the “Find an Attorney” tool on the National Association of Consumer Bankruptcy Attorneys’website.
Of course, the downside is that lawyers are expensive. Attorney fees can run you several hundred to several thousand dollars, depending on the complexity of your case and where you file. The average attorney fee for a Chapter 7 bankruptcy is $1,250. It’s $3,000 for a Chapter 13 case. Plus, you typically have to pay attorney fees up front, especially in Chapter 7 cases.
Plus, the credit counseling and personal financial management course that you’ll have to take before filing bankruptcy will cost an additional $20 to $100, depending on where you file bankruptcy.
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The Chapter 7 Discharge
A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004.
The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and 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 satisfactorily 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 property of the estate or failed to complete an approved instructional course concerning financial management. 11 U.S.C. § 727 Fed. R. Bankr. P. 4005.
You Can Keep Some Propertybut Maybe Not All Of It
In addition to the loss of collateral property that secures a loan, you can keep or lose property depending on its status as “exempt” or “non-exempt” property. When you file for bankruptcy, you can keep a certain amount of exempt property, such as the equity in your home. However, property that isn’t exempt can be sold by the bankruptcy trustee to pay off some or all your creditors.
The type of bankruptcy you choose also matters for purposes of determining what property you can keep. If you file for a Chapter 7 bankruptcy, you risk losing your non-exempt property to pay off your debts. If you file under Chapter 13 instead, you can keep all of your property, but you’ll have to repay your creditors the value of any non-exempt property through a repayment plan that is administered by a trustee.
Every state has its own specific bankruptcy exemptions, so be sure to check the ones where you live. For example, in Virginia, you can exempt $5,000 plus $500 per dependent for residential property or personal property. If you’re over 65 or a disabled veteran, that exemption goes up to $10,000. Starting in July 2020, Virginians will be able to exempt an additional $25,000 of real or personal property used as a principal residence.
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Go To Court To File Your Bankruptcy Forms
Once you enter the doors of your local courthouse, you will be greeted by security guards, who will ask you to pass through a metal detector. Once you pass security, you will go to the clerkâs office and tell the clerk that youâre there to file for bankruptcy. They will take your bankruptcy forms and your filing fee .
Do not submit your bank statements or tax returns to the court. These documents go to the trustee after the case is filed. Check out Step 7 below for more info on that.
While you wait, the clerk will process your case by scanning your forms and uploading them to the courtâs online filing system. This usually takes no more than 15 minutes.
Once done, the clerk will call you back to the front desk and give you:
Your bankruptcy case number
The name of your bankruptcy trustee
The date, time, and location of your meeting with your trustee
At this point, your case has been filed! Congrats! The automatic stay now protects you from all debt collectors. But youâre not home yet – there are other steps you need to complete to get a fresh start under Chapter 7 of the Bankruptcy Code!