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Not Consulting An Attorney
Bankruptcy law is too complicated for the average consumer to understand. Bankruptcy attorneys know all the subtleties, which might escape uninformed people. Example: If you have a child with a part-time job while still living with you and being claimed as a dependent their earnings must be counted toward household income. Attorneys should know legal ways to protect assets that could be at risk. It might be tempting to save money in this do-it-yourself era, but its probably not worth the trouble or risk. In 2017, people representing themselves succeeded only about 5% of the time in bankruptcy filings. An attorney can help you determine which bankruptcy is best for you: Chapter 7 or Chapter 13.
How Much Debt Do You Need To File Chapter 13
Debtors dont need a certain amount of debt to be eligible for bankruptcy relief. In most cases, whether bankruptcy is the right choice for you will depend on your ability to repay your debts outside of bankruptcy, whether your creditors are willing to work with you, and whether you have the type of debt discharged in bankruptcy. If you dont have much debt but want to file for bankruptcy, youre free to do so. However, a bankruptcy court might find your filing concerning.
Heres why: Limited debt collection period: A creditor has limited time to collect a debt. If the creditor doesnt file a court action within the statute of limitations period usually two to six years the creditor loses its rights . You might be better off to wait until the statutory period expires.
Judgment-proof debtor status: Filers with minimal debt are often judgment proof. They dont have income or property that a creditor can attach or collect. If you dont think your situation will improve, there wont be much reason to file.
Negative impact: Filing for bankruptcy will impact a debtors credit report for seven to ten years, so its essential to weigh the benefit of discharging minimal debt against the detriment of long term credit damage.
settle your debts for less than you owe reduce your principal balance or interest rate, or enter into a payment plan to get caught up.
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What Happens In A Clawback Suit
In a clawback suit, the trustee brings a lawsuit against the creditor that you paid off in order to get the money back. A clawback suit can cause several problems with your bankruptcy.
- The result can be messy. The trustee may sue family members, employers, medical providers, and anyone else that you paid.
- It will likely delay your discharge since the court won’t enter a discharge until the clawback suit is complete.
- If the court finds that you paid a creditor in order to hide assets, it might deny your entire discharge. This happens most often when a consumer pays off close friends or family members.
Should I File For Chapter 7 Or Chapter 13 Bankruptcy
If youve never filed for bankruptcy before, it is important to understand the two most common types of bankruptcies in the United States and how bankruptcies work. Depending on your personal financial situation, you can either file a Chapter 7 or a Chapter 13 bankruptcy. In 2019, there were over 733,000 bankruptcy filings in the United States, and 62% of these were filed under Chapter 7 bankruptcy, and 38% under Chapter 13.
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Saving Your Credit Score Is Only One Reason
An end to collection hell:;Nosals study found that once people fell seriously behind on their debt with at least one account 120 days overdue, for example their financial troubles tended to get worse. Balances in collections and the percentage of people with court judgments grew.
By contrast, people who file for bankruptcy benefit from its automatic stay, which halts almost all collection efforts, including lawsuits and wage garnishment. If the underlying debt is erased, the lawsuits and garnishment end.
Freedom from certain debts:;Chapter 7 bankruptcy wipes out many kinds of debt, including:
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Civil judgments .
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Past-due rent.
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Business debts.
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Some older tax debts.
Some debts, including child support and recent tax debt, cant be erased in bankruptcy. Student loan debt can be, but its very rare. But;if your most troublesome debt cant be discharged, erasing other debts could give you the room you need to repay what remains.
Better access to credit:;It can be difficult to get credit right after a bankruptcy. But Nosals study shows people who have completed bankruptcy are more likely to be granted new credit lines within 18 months than are people who fell 120 days or more overdue at the same time but;didnt file.
Your credit limits after bankruptcy are likely to be low, however, and your access to credit like your credit scores wont recover completely until a Chapter 7 bankruptcy drops off your credit reports after 10 years.
What Happens If You Declare Bankruptcy
If you declare bankruptcy, creditors have to stop any effort to collect money from you, at least temporarily. Most creditors cant write, call or sue you after youve filed.;But even if you declare bankruptcy, the courts can require you to pay back certain debts. Each bankruptcy case is unique, and only a court can decide the details of your own bankruptcy.
Lets talk for a moment about what bankruptcy does and doesnt cover:
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Debt Secured By Collateral: Mortgages Car Loans And More
When you purchase expensive property on credit, the lender often requires collateral in case you fail to pay the loan. Known as a “secured debt,” this type of loan is used when taking out a:
- mortgage
- car loan, or
- a loan for business property, such as fixtures or equipment.
Whether you can discharge a secured debt will depend on if you return the property you pledged as collateral. If you give the collateral back to the bank, the loan associated with it will be dischargeable in your bankruptcy case.
If you fall behind while you’re in bankruptcy, the bank must file a motion and get permission from the court to proceed against the property; however, once the case ends, the lender is free to pursue its lien rights.
Advantages And Disadvantages Of Debt Settlement
Debt settlement can be the best way out of a financial mess, but it is full of pitfalls, and the Consumer Financial Protection Bureau warns: Debt settlement may well leave you deeper in debt than you were when you started. The biggest problem is convincing a creditor, or multiple creditors, to accept less than they are owed. Creditors arent obligated to enter a settlement agreement, but many are willing if they believe you cant pay and otherwise will file for bankruptcy protection. If that happens, it means they receive little or nothing.
Some people hire a debt settlement firm to represent them, but others negotiate themselves. The advantage to contracting with a debt settlor is saving time and avoiding the hassle of negotiating yourself. But the CFPB warns:; Dealing with debt settlement companies can be risky.
If you decide to pursue debt settlement on your own, it will be vitally important that you educate yourself on the details of the debt that you owe, develop a realistic plan on how much you can save each month based on your current financial situation, and negotiate with creditors or collectors with a sensible repayment plan that they will agree to in writing.
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Income Vs Expenses Vs Debts
Before you decide to file for bankruptcy relief, you may want to take time to consider other options for getting out of debt.;First, you want to consider how much you earn versus your expenses and your debts. Is your income sufficient to pay your ordinary living expenses with enough money left over to pay your debts? If not, you need to look for ways you can change your financial situation.
When To File Chapter 7 And Chapter 13 Bankruptcy
Bankruptcy is a viable option for you no matter how high or low your debts are. Although the bankruptcy court does not have an outline regarding the minimum debt threshold, there are certain requirements that you need to meet in order to qualify.
- Filing history requirements: If you have filed and been discharged from a bankruptcy in the past, you may not be eligible to file for another bankruptcy discharge until a certain amount time has elapsed. The number of years depends on the type of bankruptcy you chose or the circumstances of your previous dismissal.
- Income requirements: To qualify for Chapter 7 bankruptcy, you need to pass the Chapter 7 Means Test wherein your income will be compared to the income of other families of your size within your state. This test allows the bankruptcy court to determine whether you have the capacity to pay off your debts.
- Other acceptable debt requirements: It is important to note that only certain types of debts can be discharged under this type of bankruptcy. Unsecured debts such as payday loans and credit card debts can be discharged in bankruptcy. ;You can also discharge the debts from a car or home that you dont wish to keep if you are underwater. If you are behind on either a mortgage or car loan, then you can catch up on those payments via a Chapter 13 bankruptcy.
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What Are The Requirements For Bankruptcy
The requirements for bankruptcy depend on the type you’re hoping to file. To file Chapter 7 bankruptcy, for instance, your income in the previous six months must be lower than the median income for households of the same size in your state. If it isn’t, you can undergo a means test that assesses your financial status and ability to pay your debts.
Other factors the court considers include how long it’s been since you last filed bankruptcy, whether you’ve completed a credit counseling course and the reason behind the filing.
Under Chapter 13 bankruptcy, you must have enough income to make the monthly debt payments outlined in the reorganized debt plan. You must have also filed a tax return in all of the previous four years. The court will also consider the amount of your debtyou can’t, for example, have more than $419,275 in unsecured debtas well as whether you’ve completed a credit counseling course and more.
If you’re not sure whether you qualify for bankruptcy, search for an attorney in your area who is willing to do a free consultation to assess your situation and provide you with expert advice.
Can Spouses File A Bankruptcy Together
Yes. The Bankruptcy Code allows spouses to file jointly for bankruptcy. The question of whether you and your spouse should file a bankruptcy together depends on whether you both are liable for the debts involved. You should remember that filing bankruptcy generally protects only the person who files for it.
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Read First: What Is Enough Debt To File Bankruptcy
When people file bankruptcy, a common question is what debts can are eliminated in bankruptcy and how much debt do I need to file bankruptcy. Here are common debts to consider:
One of the big questions about the debt amount is whether you can afford the debt or not. If you are unable to afford the debt amount, you may want to take a debt payoff options calculator such as the one below to compare costs and fees and debt freedom dates to see whether theres an option for you.
For example, if you have $5,000 in debt and can pay it back within 2 years with debt payoff planning, you may consider a different debt payoff option than if you have $500,000 in debt and will never be able to payoff your debt. The debt payoff options calculator compares Chapter 7, Chapter 13, Debt Settlement, Debt Management, and Debt Payoff Planning.
How Much Do You Need To Be In Debt Before Filing Bankruptcy
Are you late on paying your bills? Maybe youre being hounded by debt collectors? Is your financial situation stressing you out? Being in this situation could make you consider filing for bankruptcy. Youre probably thinking that bankruptcy will solve all of your money problems and maybe it will. However, there are many different questions that may be floating in your mind.
What happens if I declare bankruptcy? Do you need to have a minimum or maximum debt before you could file for bankruptcy? When is the right time to file for bankruptcy? This article will discuss these points so read on if you are interested in learning more about the answers to these questions,
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So How Much Debt Is Enough To File Bankruptcy
There is not a specific amount of debt a person must have before the person files for bankruptcy relief. If you owe $5,000 in credit card debt, you could file for bankruptcy relief. However, merely having the right to file for bankruptcy relief does not mean that it is a good idea.
For example, if you earn too much income to meet the income requirements for a Chapter 7 case, you will file under Chapter 13. Chapter 13 is a bankruptcy repayment plan. If you retain an attorney, you may pay as much as $3,500 in filing fees and attorneys fees. Also, you must pay administrative fees in Chapter 13 and cannot incur debt or sell property while in the Chapter 13 repayment plan. Therefore, filing Chapter 13 for $5,000 in debt may not be a good option.
On the other hand, if you meet the income qualifications for a Chapter 7 case, do not have many assets, and file bankruptcy without an attorney, you could get rid of your $5,000 in debt in about four to six months.
The problem with this scenario is that you would not qualify for another bankruptcy discharge under Chapter 7 for eight years. If you lose your job, become disabled, or face another financial crisis within eight years, you would not be eligible for debt forgiveness under Chapter 7 if you needed it. You are also filing bankruptcy without an attorney, which means if you make a mistake, you could lose property or have your case dismissed without a discharge.
Is This The Right Time To File A Bankruptcy
If you file a Chapter 7 case that is successfully discharged you are unable to file another Chapter 7 and receive a discharge for 8 years. While it is impossible to predict upcoming unexpected financial difficulty, you should still think about your current level of debt as you try to decide if filing a case now is worthwhile.
It is also important to consider if there is significant financial strain on the horizon, such as a medical issue that may prevent you from working for the foreseeable future. Remember that while bankruptcy can be an important remedy the best scenario to file is when the discharge of debts will resolve your financial difficulty and set you up for success going forward.
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Are Your Creditors Willing To Work With You
You may not have to resort to bankruptcy if your creditors are willing to work with you. If you can settle your debts outside of bankruptcy, you may not need to file. But if your creditors are suing you, garnishing your wages, or trying to foreclose on or repossess your property, filing for bankruptcy may be your best option to stop the collection activities.
To learn more about ways to deal with your debts outside of bankruptcy, see our Bankruptcy Alternatives topic.
How Chapter 7 Works
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities; a schedule of current income and expenditures; a statement of financial affairs; and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . 11 U.S.C. §;521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. §;302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.
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