Situations Where Filing Bankruptcy Is A Smart Choice
There are a variety of reasons why people who are overwhelmed with debt are afraid to file for bankruptcy. They may fear losing control of their finances or be scared about the damage bankruptcy will do to their credit score.
Those are valid concerns, but there are some situations when bankruptcy is your best option for managing your debts.
If you are wondering if bankruptcy is the best option for you, contact the;Cincinnati bankruptcy attorneys;at OConnor, Acciani & Levy today for a free legal consultation. We can carefully review your situation and help you decide the best course of action, which could include filing how to order ambien Chapter 7 or Chapter 13 bankruptcy.
If you decide to file bankruptcy, we can guide you through the process to help ensure you achieve the most favorable outcome possible.
Every Recession Is Different And The Pandemic Recession Is Bizarre
Most every recession has been accompanied by a significant increase in personal bankruptcy filings . But remember its what is called a lagging indicator, meaning it takes a while for bankruptcies to rise after a recession hits. Unemployment is also a lagging indicator of recessions. For example, in the Great Recession that began in December 2007 unemployment was 5%. It took nearly two years of gradual job loss for the unemployment rate to march slowly up to its peak of 10% in October 2009. Bankruptcy filings tend to lag even further behind, which is why the peak in bankruptcy filings didnt come until a later in 2010.
But comparing the current pandemic recession to the Great Recession might be like comparing apples and oranges. Take a look at the graph below and youll see for yourself :
Look how different the shapes of the unemployment rate line is between the two recessions. It took two years for unemployment to reach its peak of 10% and then started its steady march down to record lows just before the pandemic hit.
Based on what happened in the Great Recession, which was a peak in bankruptcy filings about a year after the peak in unemployment, you might be tempted to predict that the peak in bankruptcy filings will come in 2021. But its not clear its going to happen any time soon, or at all. This is unchartered territory in terms of how unique this recession is.
How Long Is The Bankruptcy Process
In Canada, the process of filing bankruptcy takes time, but most bankruptcies are discharged in less than a year. If it is your first time filing bankruptcy, the process will typically take between nine to twenty one months. By this point, the bankruptcy process will officially finish and you will receive a discharge that officially cancels any debts. If this is not your first bankruptcy, or if you make surplus income, the bankruptcy process is likely to take longer. Subsequent bankruptcies typically last a minimum of two years. Discharge from bankruptcy is subject to completing your bankruptcy obligations, otherwise it could be delayed.
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Where Bankruptcy Doesnt Help
Bankruptcy does not necessarily erase all financial responsibilities.
It does not discharge the following types of debts and obligations:
- Loans obtained fraudulently
- Debts from personal injury while driving intoxicated
It also does not protect those who co-signed your debts. Your co-signer agreed to pay your loan if you didnt, or couldnt pay. When you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan.
Will Bankruptcy Wipe Out Your Debt
Before you file your case, you’ll want to think about the goals because a bankruptcy discharge doesn’t eliminate certain types of debt . For instance, you can wipe out most credit card obligations, medical bills, and personal loans. But you can’t discharge domestic support obligations , newer tax debt, student loans , and more.
The bottom line is that filing for bankruptcy might not be in your best interest if you can’t get rid of your debt. However, bankruptcy can help in other ways. For instance, you can pay off nondischargeable debt over three to five years in a Chapter 13 case.
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Choosing When To File Bankruptcy: What To Consider
Not everyone with debt problems should file for bankruptcy. Here’s a look at some of the factors you might want to consider.
In analyzing whether filing bankruptcy is right for you, it is necessary to understand bankruptcy types. The Bankruptcy Code has several chapters, some of which apply to individuals and some to businesses.
The two chapters that apply to most individuals are Chapter 7 and Chapter 13. To put it simply, Chapter 7 results in the forgiveness of debts, and Chapter 13 results in establishing a plan to pay at least a portion of debts . Which chapter you use will depend upon the extent of your debts and your financial ability to make payments.
Meet With Your Trustee To Review Your Options
Now that youve selected your trustee you should contact them and schedule a free initial consultation. You will be asked to bring some specific details of your financial situation, including your income and expenses, assets and debts.
At your first meeting, your trustee will review your financial details, and outline the alternatives to bankruptcy that could be chosen in your case, ranging from debt consolidation through consumer proposals and including the bankruptcy process. Your trustee will provide you with information and advice on each which is best for you but the decision will remain in your hands and you will have as much time as you need.
- If you have enough income, debt consolidation or credit counseling are good debt relief options.
- Consumer proposals allow you to keep your house and other assets, subject to the rights of secured creditors.
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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.
Reasons To File Bankruptcy Now
One of the main immediate benefits of filing for bankruptcy is called the automatic stay. This means that once your creditors are notified of your bankruptcy filing, they must stop trying to collect the debt. They may not call you, mail any collection letters, pursue a lawsuit, garnish your wages, try to seize your bank accounts or other property, or shut off utilities. However, if you have a mortgage, the mortgage holder may ask the court to lift the stay so it can proceed with foreclosure, but this will still take a little time and will at least delay the foreclosure some.
Good indications that it might be time to file include:
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How Can Bankruptcy Help Me
Bankruptcy can wipe out or “discharge” most consumer debts.; This means that you no longer have a legal obligation to pay those debts.; Those creditors cannot sue you or harass you for the money anymore.; Bankruptcy can even stop your wages from being garnished.
Which debts can I discharge?
Bankruptcy can discharge most of your consumer debts like credit cards, utility and phone bills, and medical bills.; However, bankruptcy may not discharge all your debts.
The following debts usually CANNOT be discharged in bankruptcy:
- Student loans
- Most taxes
- Debts resulting from fraud
- Debts resulting from a “willful or malicious injury” ;;
Will I have to sell my property to pay my debts?
Who Declares Bankruptcy
Most individuals and business who file for bankruptcy have far more debts than money to cover them and dont see that changing anytime soon. In 2020, bankruptcy filers owed $86 billion and had assets of $56 billion. Most of those assets were real estate holdings, whose value is debatable.
On the other hand, bankruptcy can often be used as a financial planning tool when you do have enough money to repay debts, but need to restructure the terms. This is often in cases when people need to repay mortgage arrears or taxes in a structured repayment plan.
What is surprising is that individuals not businesses are the ones most often filing for bankruptcy. They owe money for a mortgage, credit card debt, auto loan or student loan perhaps all four! and dont have the income to pay for it.
There were 774,940 bankruptcy cases filed in 2019, and 97% of them were filed by individuals. Only 22,780 bankruptcy cases were filed by businesses in 2019.
The other surprise is that most of the people filing bankruptcy were not particularly wealthy. The median income for those who filed Chapter 7, was just $31,284. Chapter 13 filers werent much better with a median income of $41,532.
However, in the end, there is a price to pay and youll pay it for 7-10 years.
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Choose Your Debt Amount
Asking someone if you should file bankruptcy is not a simple yes or no question. Just about everyone will say: Only as a last resort!
In other words, only after you have gone over all other debt relief alternatives and still cant find a way out of this mess.
But be careful as you weigh your options. Bankruptcy takes a toll and its not just financial. There is a societal stigma attached to it. For some reason, American consumers view bankruptcy as a financial scar that marks you as a failure the rest of your life.
It is not that.
Bankruptcy is more like a financial scab, something that looks nasty for a while, but with care and attention, eventually clears up and fades away. Its a chance to start all over again. Thats the reason bankruptcy laws were written, to give people a second chance, not to punish them.
But first, weigh both sides of the issue before deciding.
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What Happens To Your Credit Score After Filing Bankruptcy
Chapter 7 bankruptcy and Chapter 13 bankruptcy filings show up on your credit report. How long it shows up depends on which type of bankruptcy you file. Chapter 7 bankruptcy stays on your credit report for 10 years after the filing date. A completed Chapter 13 bankruptcy stays on your credit report for 7 years after the filing date, or 10 years if the case was not completed to discharge.
As a result, filing bankruptcy will initially lower your credit score. How much your credit score will drop depends on how high or low it was before bankruptcy. Generally, a decrease between 100 to 200 points can be expected.
The good news is that you can begin rebuilding your credit as soon as your bankruptcy discharge is entered. It’s possible to have a better score within 1â2 years of filing. The credit scores of most bankruptcy filers are already lower because of missed payments. After the court grants a discharge, most unsecured debts are erased. Credit scores improve because there are no more missed payments and discharged accounts show a zero balance.
After Chapter 7 and Chapter 13 bankruptcy is filed, you will get credit card offers in the mail. These offers can be for secured credit cards, sometimes called prepaid cards, which require a cash deposit. Or, offers can be for unsecured credit cards, but will likely have high interest rates or annual fees.
One Case Pending Within 12 Months
If you had one prior bankruptcy case pending within the previous 12 months dismissed, you could probably file a second case, but the automatic stay will last for only the first 30 days of the latter case. Creditors will have to stop their collection actions, but only for 30 days. After that, the automatic stay will naturally end unless you get court approval to extend.
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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.
Bankruptcy Basics: When Should You File For Bankruptcy
Sometimes, there’s no other option than to file for bankruptcy. But before you do, make sure to assess your situation accurately.
Bankruptcy is a scary proposition. The word “bankruptcy” itself sounds so ominous. The media bombards us with nightmare tales of seemingly solid business giants going from bedrock to bankrupt. Gossip columns never tire of dishing on the latest celebrity inches from bankruptcy. You might even fear that you’re a few steps from going under. But, just how can you tell when it’s time to throw in the towel and declare bankruptcy?
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Cooperating With The Trustee
Bankruptcy filers have an obligation to cooperate with the trustee throughout their bankruptcy case. Filers will need to provide the trustee with a copy of the tax return for the year the case was filed.
After the meeting of creditors the trustee will file a Report of No Distribution indicating that no funds are going to be distributed to your creditors or a Notice of Claims Bar Date stating the due date for creditors to file claims to receive funds in your bankruptcy. Other than these filings, ideally you will not hear from the trustee after the meeting of creditors.
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.
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