If You Cant Repay Your Debts But Want To Avoid Bankruptcy
What if you owe more than $10,000 and but want to avoid bankruptcy? Another option to consider is a consumer proposal. This is where you offer to pay back a portion of the debt over a period of up to 5 years. You must offer your creditors the greater of what a bankruptcy would generate and an amount sufficiently large enough for your creditors to consider it.
If you have questions regarding the amount of debt you have and what your options might be, talk to a trustee in bankruptcy. All consultations are free, so in that regard no debts are too small to discuss.
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:
- 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.
Can You Negotiate Your Debt With Your Creditors
If you can work out a solution directly with your creditors, you might not need to file for bankruptcy. In some cases, creditors might be willing to work with you to cure your default. By negotiating with your creditors, you might be able to:
- 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.
You’ll want to try to settle debt with all creditors before choosing this option. It won’t make sense to pay some creditors only to end up filing for bankruptcy later. When deciding whether settling is the best option, be sure to take into account the federal income tax assessed on the forgiven debt, too.
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How Long Will It Take To Pay Off Your Debts
Another factor to consider is how long will it take you to pay off your debts if you do not file for bankruptcy relief. For someone on a fixed budget who cannot reduce expenses or increase income, paying off $5,000 or $10,000 in debt may take three to four times as long compared to someone who can increase income and reduce expenses.
For example, if you owe $10,000 in credit card debt and can only afford to pay $235 per month, it will take you ten years to pay off the debt with an interest rate of 26 percent. You will pay almost $18,000 in interest for a $10,000 debt. That is assuming that your credit card company allows you to pay just $235 per month. The company may require a higher minimum payment each month.
Therefore, if your resources are limited, filing bankruptcy for a smaller amount of debt may be more practical for you than it would be for someone in a different financial position.
As with all other financial matters, it is essential to consider all factors relevant to your situation before deciding how to proceed. You should not base your choices for debt relief on another persons choice for resolving debt problems. What works for your friend may not work best for you.
Reasons Not To File For Bankruptcy
Here are some reasons bankruptcy might not be a good idea for you:
- Bankruptcy stays on your credit rating for 7 to 10 years
- Getting credit may be harder or more expensive
- It can cause strain in relationships with some creditors and cosigners
- You may have to return property that is not paid for
- You can only get a Chapter 7 discharge once in eight years and
- You may be able to protect your income and property without filing bankruptcy.
Also, the following types of debt will remain even after a bankruptcy:
- Unpaid child support payments
- Unpaid maintenance or alimony payments
- Unpaid fines
- Most unpaid state and federal taxes
- Criminal restitution orders
- Debts due to fraud, theft or embezzlement
- Damages to another person caused by drunk driving or something done on purpose
- Debts from a property settlement in a divorce
Finally, here is a list of things bankruptcy cannot do for you:
- Get rid of a security interest, such as a mortgage or security in a car
- Stop an eviction, if the eviction court already entered an Eviction Order before the bankruptcy was filed
- Protect cosigners, unless they also file bankruptcy
- Release you from credit card debts that happened right before the bankruptcy was filed
- Discharge debts that are incurred after the bankruptcy is filed
- Discharge debts the court decides you can afford to pay if you have enough income
- Allow you to keep valuable property, such as a vacation home, an RV or expensive jewelry
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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.
Other Actions A Creditor May Take After Obtaining A Judgment
State laws determine the legal steps a credit card company may take to collect a judgment debt. In some states, creditors are allowed to garnish your wages for judgments. Some states allow judgment holders to apply for supplemental proceedings to identify any personal property the judgment holder may seize to satisfy the debt.
The actions the credit card company takes to collect a judgment debt depends on the company. Some credit card companies and debt collectors pursue judgment debts aggressively. Thatâs because they can afford to have full-time attorneys working on their behalf. In some cases, a person could lose a substantial portion of his or her income in wage garnishments or lose property to satisfy a judgment debt.
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Bottom Line: Take Action If Your Debts Feel Overwhelming
The answer to the question, how much debt for bankruptcy is simple:
If your debts are more than you are able to repay in a reasonable period of time, you should consider consumer proposal or filing for personal bankruptcy in Canada.
Also, if you are feeling a great deal of stress because of your debts, or if you are already receiving at home and at work, it is time to take action.
To learn what the options for your particular case are, we recommend that you contact a Licensed Insolvency Trustee today. Only a Licensed Insolvency Trustee can file a consumer proposal or a bankruptcy for you, and he or she can advise you on any other options that fit your situation. Your conversation will be confidential, and your first appointment is free.
Is Bankruptcy The Best Solution For Your Current Situation
In order to determine if bankruptcy is the best solution to your current situation you must first determine if you are qualified to file a Chapter 7 case. Chapter 7 bankruptcy is what most people think of when they are considering filing a bankruptcy, which is a total liquidation. In a Chapter 7 case you can walk away from your debt in a relatively short period of time and get a fresh start.
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Filing For Bankruptcy Can Cost Anywhere From A Few Hundred To A Few Thousand Dollars Depending On The Type Of Bankruptcy Filed And Whether You Hire An Attorney Or Take A Diy Approach
Filing fees and other miscellaneous costs required to file a bankruptcy petition typically range from $300 to $400. If youre filing on your own, you may not have to pay much more than that.
Working with a bankruptcy lawyer can add to those figures significantly. Their fees can vary widely based on the type of bankruptcy you file for, the market rate where your attorney practices and the complexity of your financial situation.
Coming up with any extra money might seem impossible if youre already struggling to pay for basic expenses and creditors are breathing down your neck. Luckily, assistance may be available if you believe bankruptcy is the right choice for you.
Lets look at the two common types of bankruptcy, the fees you may be responsible for and a few ways you might be able to pay for them.
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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Chapter 13 Bankruptcy Has A Debt Limit Chapter 7 Does Not
In a Chapter 13 bankruptcy, youll work with your attorney and the court to create a three- to five-year repayment plan for your debts. Some secured debts, such as a home loan, may extend beyond the five-year period according to the terms of your contract, but at the end of five years, your unpaid unsecured debt will be discharged. If you have more than $1,184,200 in secured debt or more than $394,725 in unsecured debt you wont qualify for Chapter 13 bankruptcy.
So, does Chapter 7 bankruptcy also have a maximum debt limit?
There is no ceiling on the amount of debt with which you can file for Chapter 7 bankruptcy. Chapter 7 also is often preferred over Chapter 13 because it wipes out debt and doesnt involve repayment. The rules under Chapter 13 are more stringent, but Chapter 7 is open to any individual with any amount of debt. However, it is worth noting that corporations cannot receive a discharge in Chapter 7 bankruptcy.
Can I Keep My Home
We understand that your house is likely your most valued possession. There are exemptions that allow you to keep some of the equity in your home when you file for bankruptcy. Generally speaking, however, if youve already paid off a large portion of your mortgage , filing for bankruptcy might not be the best solution for youthe law requires you to use that equity to pay off some of the money you owe to your creditors.
To keep your home after filing a bankruptcy, you would need to pay a Licensed Insolvency Trustee the amount of home equity you haveminus any provincial exemptions. Home equity is calculated by subtracting the remaining amount of your mortgage, along with any outstanding taxes you owe, from what your house is currently worth on the market. For example:
For example: Current market value of Bobs home: $150 000
|Bobs estimated home equity||$19 400|
Depending on which province he lives in, Bob would have to pay up to $19,400 during the bankruptcy process in order to keep his home. This is one of the reasons why bankruptcy is only considered after other debt relief solutions have been explored. If Bob can afford to repay a portion of his debt, but not the full amount of equity in his home, he may wish to consider an alternative to bankruptcy, such as a consumer proposal. A Licensed Insolvency Trustee will be able to explain every option to help Bob choose the best solution that is right for him.
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Choose The Right Bankruptcy Filing For You
We are proud to represent our clients in four primary areas of bankruptcy relief. Called Chapters, each of these forms of bankruptcy has its own advantages and disadvantages. The four Chapters used for filing for bankruptcy, where we help clients find debt relief, include:
- Chapter 7: Straight bankruptcy, where debts are fully forgiven
- Chapter 11: Complex business bankruptcies with debt reorganizations and restructures
- Chapter 12: Debt relief and repayment plans for family farmers and family fishermen
- Chapter 13: Debt relief for income earners that can help stop foreclosures and other looming debt recovery efforts
When you decide to declare bankruptcy, your lawyer will help you choose the right Bankruptcy Chapter for your financial situation. Filing for bankruptcy is a complex, time-consuming procedure. Your lawyer can help you understand and navigate the filing process from your initial petition to final discharge.
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Bankruptcy Exemptions In Ontario
- No limit on clothes for you and your family
- Household furniture, utensils, equipment, food and fuel up to $13,150
- Tools and instruments used by you in your business up to $11,300
- One motor vehicle up to $6,600
- If the equity in your home does not exceed $10,000, your home is exempt if the equity exceeds $10,000, then your home is not exempt from seizure
- Most pension plans and certain types of life insurance policies
- RRSPs, except for contributions in the 12 months before the date of bankruptcy
- For farmers, up to $29,100 for livestock, fowl, bees, books, tools and implements of the trade
For more information on bankruptcy exemptions in Ontario, find a Licensed Insolvency Trustee near you.
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What Happens When You Get Behind On Your Credit Card Payments
If you fall behind on your credit card payments, several things may happen. The credit card company may raise your interest rate, which means that less of your payment each month applies to the account balance.
The credit card company will charge late fees and other fees, such as over-the-balance fees which increase the amount you owe to the company. The company may turn the account over to a debt collector. A debt collector can be extremely persistent in its pursuit of the debt, including calling you at work and harassing you at home. is another common reason people file a Chapter 7 case.
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Exemptions In British Columbia:
- No limit on clothing for you or your dependents all clothing is exempt from bankruptcy
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $5,000 unless you are behind on child support payments, in which case the limit is $2,000
- Work tools and work-related property up to $10,000
- No limit on medical and dental aids for you or your dependents
Can I File For Bankruptcy With $35k In Credit Card Debt
Filing bankruptcy should be looked at as a last-resort scenario, but, in some cases, it can be helpful or even necessary to get back on your feet financially.
There’s no minimum amount of debt you have to have before you can file bankruptcy, and the maximum amount of unsecured debt is in the hundreds of thousands of dollars. So it’s possible to file bankruptcy with $35,000 in credit card debt.
Whether that’s a good idea, though, is another question entirely. Credit card debt is considered dischargeable, but the negative impact a bankruptcy is likely to have on your credit can be severe and last for years. As such, it’s crucial that you research the process and learn more about alternatives before you hire a bankruptcy attorney.