Are Your Debts Dischargeable
Even if you do qualify to file a Chapter 7 case you want to make certain it will give you the relief you are seeking, a true fresh start. To determine this it is important to look at the type of debts that you are seeking to discharge. Most debts are fully dischargeable, although discharging a secured debt likely means surrendering the collateral.
There is another category of debts called priority debts, which are generally non-dischargeable, meaning these debts will survive a bankruptcy filing. Priority debts include child support, alimony payments, tax debts and student loan. If the bulk of your debts are non-dischargeable filing a bankruptcy will not give you a full fresh start and may not be the best solution for you. You may want to consider reasonable alternatives, such as working with creditors to create a payment plan.
Disadvantages Of Going Bankrupt
To apply to go bankrupt youll need to pay a £680 fee. Other disadvantages of going bankrupt include:
- if your income is high enough, youll be asked to make payments towards your debts for 3 years
- it will be more difficult to take out credit while you’re bankrupt and your credit rating will be affected for 6 years
- if you want to take out a loan of more than £500, you have to tell the lender youre bankrupt – youll break the law if you dont
- if you own your home, it might have to be sold – this depends on how much it’s worth after any amounts secured on it are repaid
- if you rent your home, your landlord could end your tenancy
- some of your possessions might have to be sold if they are not ‘exempt goods’
- some jobs dont let people who have been made bankrupt carry on working
- if you own a business it might be closed down and the assets sold off
- going bankrupt can affect your immigration status
- your bankruptcy will be published publicly
Things To Consider Before Filing For Bankruptcy
Filing for bankruptcy is a major financial decision. There are many different reasons for personal bankruptcies. Maybe you lost your job or maybe youve racked up a lot of credit card debts that you are having a hard time paying your bills and expenses. Whatever your reason may be, filing for bankruptcy should be your last resort.
If you are unsure whether you should file for bankruptcy or not, you can review the following points to see whether this is the right time for you to file a bankruptcy.
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Can You Afford To Pay Back Your Debts
Before you file for bankruptcy relief, consider how much income you have and whether you can afford to pay back your debts. If your income is high enough to pay back your debts, you may not qualify for Chapter 7 bankruptcy or you may have to pay back a significant portion of your unsecured debts in Chapter 13 bankruptcy.
If you don’t have a lot of debt and you have sufficient income to pay back your obligations, it may be in your best interest to delay filing for bankruptcy until when you really need it. There are limits to how often you can receive a discharge in bankruptcy. If you file to eliminate a small amount of debt you can easily pay off, you may not be entitled to another discharge for many years.
Alternatives To Chapter 7
Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.
In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707.
Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.
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Get Prepared To File Chapter 7 Bankruptcy
Speak to a member of our team right away to start relieving your financial burden. Our team represents individuals and small business owners in Chapter 7 and Chapter 13 bankruptcy cases. We can also represent men and women who might benefit from Chapter 11 reorganization bankruptcy, as well as Chapter 12 bankruptcy for family farmers. Call Farmer & Morris Law, PLLC at to speak to a member of our team and start making plans to restore your finances today.
Questions To Ask Before You File For Bankruptcy
- 3 Minute Read
If you cant pay off your debt, one of the first things you might ask yourself is, Should I file for bankruptcy? After all, it seems like it would solve the problem once and for all and give you a clean slate.
Its true that bankruptcy can give you a fresh start and in some situations, bankruptcy is the best option. But there are a lot of things to consider before you make the decision, so ask yourself these questions before you file.
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Aug What Is Your Debt To Income Ratio
Knowing your debt to income ratio, could help you make sounder financial decisions in the future. Your debt to income ratio is used by companies who are considering lending you money to determine if you are carrying too much debt in relation to your income. You can figure out your debt to income ratio rather easily on a monthly basis or a yearly basis.
I like to do both. I like to know what my monthly debt to income ratio is so that I stop myself from impulse purchases. Everytime that I am tempted to purchase something, I have that nagging little voice saying to myself, you need to lower your debt to income ratio, not increase it.
Likewise, knowing your debt to income ratio for the year will allow you to decide longer term strategies for dealing with your debt, and hopefully, eliminating it. So, lets get into it. If you have a spreadsheet program, great. If not, please get some paper, a ruler and a pencil. The best way to do this is to graph it out.
I like to start with gross monthly income from all sources. Start with annual income and divide it by 12 to get an average monthly income. Make sure you add all income from bonuses, raises, etc. This will give a more accurate picture of your finances. Lets say that the yearly gross income for the household is $60K. Then your monthly income is $5,000. Now, we go to the bills.
0% to 10% Great, stop reading, you are wasting your time.
10% to 15% Good, but you need to keep your eye on things.
Federal Loans And Hardship
Your student loan holder may choose not to oppose your petition to have your loans discharged in bankruptcy court if it believes your circumstances constitute undue hardship. Even if your loan holder doesn’t, it may still choose not to oppose your petition after evaluating the cost of undue hardship litigation.
For federal loans, the Department of Education allows a loan holder to accept an undue hardship claim if the costs to pursue the litigation exceed one-third of the total amount owed on the loan . Private student lenders are likely to apply similar logic.
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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:
Civil judgments .
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.
Chapter 7 Bankruptcy: What It Is And How To File
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Chapter 7 bankruptcy can wipe out many forms of overwhelming debt under the protection of a federal court. You may have to give up some assets, like an expensive car or jewelry, but the vast majority of filers do not. Chapter 7 bankruptcy is the fastest and most common form of bankruptcy.
Chapter 7 bankruptcy erases most unsecured debts, that is, debts without collateral, like medical bills, credit card debt and personal loans. However, some forms of debt, such as back taxes, court judgments, alimony and child support, and student loans generally arent eligible. Chapter 7 bankruptcy will leave a serious mark on your credit reports for 10 years. During this time youll likely find it harder to get credit. Even so, youll probably see your credit scores start to recover in the months after you file.
Read on to learn about how you can qualify for Chapter 7 bankruptcy, how to file, whether this debt relief option is right for you, and how to rebuild after bankruptcy.
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When Should I Consider Filing For Bankruptcy
While there is no single answer to when you should file for bankruptcy, the amount you owe is a deciding consideration. However, there are several other factors that may indicate that bankruptcy maybe your best option, such as:
- Are you struggling to repay your debts?
- Do you owe more than you take in per month?
- How willing are creditors to work with you?
- Do you have any other ways to pay back your debts?
While there is no minimum amount needed to file for bankruptcy, there is a ceiling for Chapter 13 debt relief. Currently, you are not allowed to have more than $419,275 of unsecured debt, and $1257,850 of secured debt.
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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The Additional Step: Filing An Adversary Proceeding
Here’s where things get more complicated. As stated earlier, just filing for bankruptcy under either Chapter 7 or Chapter 13 is not enough to have your student loans discharged. You must take the additional step of filing an adversary proceeding.
Under the U.S. bankruptcy code, an adversary proceeding is a proceeding to determine the dischargeability of a debt. In other words, it’s a lawsuit within a bankruptcy case. Included in the adversary proceeding paperwork is “a complaint.” The complaint includes administrative details, such as your bankruptcy case number, along with the reasons you are seeking to discharge your student loans in bankruptcythe circumstances of your undue hardship.
Thisadditional step is necessary because student loans and a few other types of debt have stricter requirements for discharge than credit card debt, for example. These requirements are described in section 523 of the U.S. bankruptcy code. The keywording that relates to the discharge of student loans is: A discharge under…this title does not discharge an individual debtor from any debt…unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtors dependents.” Note the words “undue hardship,” which is discussed below.
Chapter 13 Bankruptcy Is A Legal Process That Allows People To Repay Their Debts Over Time While Having The Opportunity To Keep Valuable Assets Like A Home
Chapter 13 bankruptcy is also called the wage earners plan, because those who file need regular income to qualify. Instead of having your debt forgiven, youll restructure your debt with a three- to five-year repayment plan.
The flexibility of the repayment plan can make Chapter 13 the right kind of bankruptcy for those who have a job with steady income and want to hold onto their property.
Heres a rundown of whos eligible for Chapter 13, the general shape of the process, and the pros and cons to consider before filing.
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Undue Hardship And Student Loan Discharge
To succeed in having your student loans discharged, you must demonstrate that not having them discharged would cause you to experience “undue hardship.” For a bankruptcy court to take your side, you will have to meet specific conditions. The problem is that there is no uniform set of conditions.
However, your student loan creditorswhich may include lenders, servicers, and collection agencies, depending on the types of loans you have and how far behind you are on paymentsmust also meet specific conditions. They must satisfy the preponderance of the evidence standard, a high standard that requires them to prove that their claims against you are valid. They must also prove that your loans meet the conditions of section 523.
Different Types Of Bankruptcy
For individuals, there are two main types of bankruptcy cases. Most individual debtors file for Chapter 7, which can also be described as âstraightâ bankruptcy or âliquidation.â Under this plan all non-exempt assets are converted to cash , and secured creditors may have the item they financed turned over to them , unless the debtor reaffirms the debt with the courtâs approval prior to obtaining a discharge. Chapter 13, also called âreorganization,â is an option for people with regular income and debts that are less than the limits allowed by law. When you complete a Chapter 13 plan, you have the satisfaction of keeping your assets, paying your creditors, and possibly discharging some of your debts.
Bankruptcy is a serious step. If you choose to file Chapter 7 or Chapter 13, you will probably need to hire an attorney. Be sure to find an attorney who has experience handling the type of bankruptcy case you plan to file. The following overview of Chapter 7 and Chapter 13 will give you some idea of whatâs involved.
Every Situation Is Different
Bankruptcy is sometimes referred to as an insolvency solution. Insolvency is defined as the inability to pay your bills as they become due, because of lack of funds. There are many insolvency solutions in Canada, including bankruptcy, consumer proposal, and .
As an example, a person with a high income may be able to service $100,000 in debts without any problems. Their income is preventing them from becoming insolvent, despite the high payments they must make on their debts.
Another person, this one with a lower income and higher expenses, perhaps due to a larger family, may have great difficulty servicing a mere $10,000 in debts. The bills are comparatively small, but they are piling up unpaid, and creditors may be calling.
This second individual, with the lower debts, may be a candidate for bankruptcy and the protection it offers, while the person with higher debts may be able to service them on their own.
So, the qualification for bankruptcy depends on a lot more than the mere amount of debt.
Conversely, even if the amount you owe is equal or greater than the minimum amount of debt required by the law for filing bankruptcy in Canada, and you are having difficulty paying your bills, that does not necessarily mean that you are facing bankruptcy.