What To Do After Chapter 7 Bankruptcy
Push the re-start button on your financial life.
Thats the first thing anyone should do after having debts discharged in Chapter 7 bankruptcy. Hopefully, that re-start button includes a plan for reduced spending and paying all bills on time.
The easiest way to do that is to draw up a budget that realistically accounts for your income and expenses.
If youre not good at that, call a nonprofit credit counseling agency and get some free assistance from their professional certified counselors. Helping consumers come up with an affordable monthly budget is their specialty.
They can give you the benefit of their training and experience at drawing up monthly budgets, plus tips on how to make the bottom line come out in your favor every month.
If you get in the habit of paying bills on time, you will begin to , and youll regain favor with lenders and credit card companies. A few years of good practice and you and your creditors will forget this ever happened.
The Debtor Defrauded Creditors
A bankruptcy court may discharge a bankruptcy case if it appears that the filer has attempted to defraud creditors. The following types of actions by a debtor within a few years of filing for bankruptcy may indicate fraud in the court’s eyes:
- The debtor transfers property to friends and family members
- The debtor mutilates or destroys property
- The debtor purchases luxury items
- The debtor lies about income and debt on a credit application
A filer signs bankruptcy papers under “penalty of perjury,” so providing false information may not only lead to the dismissal of a debtor’s case but may also lead to charges of perjury or fraud on the court.
What Debt Can’t Be Erased
Chapter 7 bankruptcy cannot erase the following types of debts:
Child support and alimony
Recent tax debts and other debts you owe the government like fines
Student loans can usually not be erased
These debts are known as non-dischargeable debts.
Secured debts are debts that are connected to a specific property, like a mortgage is connected to a house and a car loan is connected to a specific car. If you want to keep your property that secures a debt, you’ll have to continue paying on the debt. Before you file, you must also make sure youâre current on your debt payments. If youâre willing to give up the property, then Chapter 7 bankruptcy can erase the debt.
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The Things That Happen Immediately After Filing Bankruptcy
As soon as you file your Chapter 7 bankruptcy, you are given a case number and a bankruptcy trustee is assigned to your case. The bankruptcy trustee will oversee your bankruptcy filing, will review your bankruptcy forms, and may ask for additional documents to verify your information. The trustee will also conduct the meeting of creditors.
Protection from your creditors begins immediately after filing for Chapter 7 or Chapter 13 bankruptcy. This is called the automatic stay. Once you file and the automatic stay takes effect, your creditors are not allowed to take collection action against you.
After you file for bankruptcy protection, your creditors can’t call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt. Wage garnishments must also stop immediately after filing for personal bankruptcy.
How Much Debt Can You Erase In Bankruptcy
Not all debt goes away in bankruptcy. Finding out how much you can wipe out should be your first step. In both Chapters 7 and 13, dischargeable debt includes:
- car leases, and
- gym memberships.
But this isn’t a complete list. And it’s actually easier to learn which debts you can’t discharge in bankruptcy.
Bankruptcy Impact On Home
The good news about bankruptcy and your home is that you wont lose it as long as you can make payments.
Remember that the purpose of bankruptcy is to give you a chance for a fresh start and its a lot easier to start over if youre not homeless. Thats why bankruptcy laws make homes exempt from creditors claims.
But only if you can make the payments.
If living in a house you cant afford is part of the reason youre filing bankruptcy, then yes, you could lose your home.
In Chapter 7, if you fall behind making payments, you could seek protection for your home by filing Chapter 13 to allow you time to catch up. Or, you may have to throw in the towel and let the bank foreclose on you.
In Chapter 13, its far more complicated, but you essentially return to the default status you were in before declaring bankruptcy. That means creditors who have claims against you can go after you for payment.
How Long Can Debt Collectors Try To Collect In Canada A Guide To Canadian Debt Collection Laws
For many Canadians, having their debt turned over to a collection agency is an absolute worst-case scenario. These fearsome businesses have earned a reputation for being persistent, difficult to work with and almost impossible to shake.
Although most collection agencies work within the professional and ethical bounds of their industry, there have been numerous cases when deceitful, harassing and otherwise threatening or unsavoury practices have violated consumer rights and stirred the need for stricter regulation.
While broader government oversight has achieved much to reign in collection practices across Canada, its important for consumers to understand the debt collection laws agents must follow, their rights when dealing with a collection agent what they can do when either of these are being violated.
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Think Of Insolvency Waiting Periods As A Clock With A Start Date And An End Date
It is helpful to think of these waiting periods as a clock with a start date and an end date. The end date is straightforward: its the date that your Licensed Insolvency Trustee receives a Certificate of Appointment from the Court typically within one or two days of your filing for personal bankruptcy or making a consumer proposal.
The $64,000 question is: when is the start date of the 7-year and 5-year waiting periods?
There are a significant number of Canadians who waited several years before applying for a bankruptcy or making a consumer proposal who subsequently found out that they failed to have their student loan forgiven because they miscalculated the start date on the running of the 7-year waiting period under federal insolvency lawby a period of a few days, weeks or months.
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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I Who Is The Employer Of The Collector Calling Demanding Payment Of An Unpaid Account
The answer to this question can often be straightforward. In some instances, however, the answer can be quite complex.
Your unpaid account may be owned by either your original creditor or it may be owned by a debt buyer. Your original creditor is the company that provided you with goods, services, or credit. Some original creditors will sell their portfolio of unpaid accounts to another firm. These purchasers of unpaid accounts are known as debt buyers.
To make matters more complicated, there are two distinct categories of debt buyers. Traditional collection agencies will purchase debt. As far as traditional collection agencies are concerned, their primary revenue source is collecting debts owed to others on a commission basis, and collecting accounts it owns is a secondary source of revenue. The second category of debt buyer is the pure debt buyer. The pure debt buyer does not collect accounts owed to others on a commission basis.
Some original creditors never sell their unpaid accounts to debt buyers. There are a handful of Canadian firms that sell their unpaid accounts when they have been unpaid for as little as six months. It is more common, however, for Canadian firms to sell their portfolio of bad debts when the date of last payment is at least two to six years in the past.
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!
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When Should Older Adults Consider Bankruptcy
So in what scenario might it be a good idea for an older adult to file for bankruptcy?
I always say You dont file bankruptcy when you want to, you file when you have to, Haupt says. I always discourage it until its absolutely necessary.
That threshold will depend on a lot of factors. But as a general rule of thumb, if the debt is strongly impacting your quality of life, bankruptcy might be a solution.
Some people have a really low tolerance of stress, Haupt says. If theyre losing sleep, it might be time to file.
Its also worth looking at the kind of debt youre looking to discharge. Medical debt and credit card debt are two of the most common reasons to file for bankruptcy, and they are some of the easiest debts to discharge. Sometimes Chapter 7 bankruptcy can help wipe these debts out in a matter of months, Haupt says. Debt collectors also by law have to stop calling once youve filed for bankruptcy, which could bring you more peace of mind.
V What Are The Odds That I Will Be Sued Over An Unpaid Account
It is important to understand that collection agencies are compensated on a commission basis. Accordingly, given the significant costs associated with litigation, the odds of a collection agency suing a consumer on behalf of a creditor are quite remote. If you are to be sued then you are much more likely to be sued by your original creditor or a debt buyer. Debt buyers often sue files because they may have only paid pennies on the dollar to purchase an unpaid account. Furthermore, creditors are much more likely to sue an individual in circumstances where a person owns real property in his or her name.
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How Resolve Can Help
If youre dealing with debt and not sure what to do, were here to help. Become a Resolve member and well contact your creditors to get you the best offers for your financial situation. Our debt experts will answer your questions and guide you along the way. And our platform offers powerful budgeting tools, credit score insights and more. Join today.
Youre Facing Home Foreclosure And/or Car Repossession
Bankruptcy can issue a stay on any repossession or foreclosure activity, just like it can for credit card collections. But this stays a little more complicated.
Money you owe on homes and cars may be a secured debt, or a debt where a creditor can repossess the property. This is the case if a creditor has a lien on your home or car. A lien is basically a claim on your property saying the creditor can take it back if you dont make payments. You may have to read the fine print or consult a professional if youre not sure whether creditors have a lien on your home. Bankruptcy can erase what you owebut it cant keep creditors with liens from repossessing property.
Dont panic! In many cases you can keep your home even after you file. One type of personal bankruptcy, Chapter 13 bankruptcy, gives you time to catch up on mortgage payments. The property you get to keep also depends on your states bankruptcy exemption lawseach state has different rules about which properties are exempt from creditor claims.
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Will Bankruptcy Benefit You
With so many factors involved in the decision-making process, a Yes or No answer isnt possible, but here is a good guideline to use in making a final decision.
If you cant find a way to get out of debt in the next five years and have diligently researched solutions then yes, bankruptcy can benefit you.
But weigh the pros and cons and remember one other thing: You cant go to jail just because you owe someone money.
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You Can Repay Some Debt
If a filer’s income is more than their state’s median income, it is necessary to look at how much disposable income the filer has left after paying “allowed” monthly expenses, such as rent and food, to determine whether the filer has enough money to pay some of their unsecured creditors through a Chapter 13 repayment plan.
If the filer has a certain amount of income left over to pay some unsecured creditors, the court will dismiss the Chapter 7 filing.
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Negotiating With The Trustee
Most Chapter 7 bankruptcy cases are what is called “no-asset” cases, which means everything the filer owns is protected through bankruptcy exemptions. Exemptions are specific to where cases are filed and vary by state law. Exempt property can’t be taken from the filer.
Nonexempt property is not protected through Chapter 7 bankruptcy and can be taken by the trustee and sold to pay back your unsecured debt. If a bankruptcy filer wants to keep otherwise nonexempt property, they can usually pay the trustee the value of the property. This is generally an option because the creditors will ultimately get the same amount whether the nonexempt asset is sold by the trustee or is bought by the filer.
What Happens If I Have Tax Debt That Cant Be Erased Yet
Plenty of taxpayers are in this boat, and they all have several legal options. An attorney can advise you on the best course of action, but ultimately, the decision is yours.
Pay in installments. Some people talk to the IRS about a payment plan. The IRS usually backs off once the taxpayer starts an installment agreement. After all, the IRS just wants the money. It doesn’t really want to garnish your wages. Keep in mind that installment agreements are only a good idea if you have the money. If thatâs not the case, you need another option.
Participate in the Offer in Compromise program. The IRS has many programs to help taxpayers pay their tax debt when they have little or no money. The main example is the Offer in Compromise program where taxpayers pay what they can, and the IRS forgives the rest. This program can be extremely complex, and few people qualify. Also, if the taxpayer has any assets whatsoever the IRS will force the taxpayer to sell them. Finally, while the taxpayer negotiates, the IRSâs harassing collections techniques continue.
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Who Qualifies For Chapter 7 Bankruptcy Should I File
There is a difference between who is allowed to file and who should file.
Most people who earn under the median income for their state, based on their household size, are able to file. This is because they pass the means test according to bankruptcy laws. The means test takes into account your average monthly income over the last 6 months.
If you donât have a job or earn near the minimum wage, you will likely qualify for Chapter 7 bankruptcy. If you don’t pass the means test, you can file a Chapter 13 bankruptcy but not Chapter 7.
Folks looking for a fresh start typically fall into one of three categories:
Those who should file for Chapter 7 bankruptcy right now
Those who should wait a little bit of time and then file for Chapter 7 bankruptcy
Those who should not file for Chapter 7 bankruptcy.