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.
The Federal Government May Intervene
Under rare situations, the federal government may pass laws that could affect your bankruptcy case during a pandemic. For instance, the federal government passed a stimulus bill in response to the COVID-19 pandemic.
Under this stimulus bill, several temporary changes were made to the bankruptcy code. Some of these changes include:
- Previously, the debt limit to be eligible to file for bankruptcy under the Small Business Reorganization Act was $2,725,625. Under this stimulus bill, the debt limit was increased to $7.5 million for a period of one year.
- The bill also changed the definition of “income” for Chapter 7 and 13 bankruptcy filers. Accordingly, payments received from the federal government that are related to COVID-19 are not considered income for purposes of bankruptcy.
- People with federal student loans can, without penalty, defer their payments for six months through September 30, 2020.
- People who already filed a Chapter 13 and are under a repayment plan can make modifications if they can show “material financial hardship” because of the pandemic. The modifications include an extension of payments for seven years.
Don’t Go On A Spending Spree Or Drain Your Retirement Account
Even though it’s tempting to do so, don’t rack up new debt during the 70- to 90-day period before filing for bankruptcy. Your creditors can object to your request for a bankruptcy discharge on the basis of bankruptcy fraud.
The bankruptcy trustee may also try to recover money or property by setting aside certain transfers that you’ve made within 90 days before filing bankruptcy. The trustee can also undo security interests and other pre-filing transfers that weren’t done properly. For example, transferring your property to a relative before filing bankruptcy can be treated as a fraudulent conveyance and undone by a trustee.
Don’t drain your retirement account before filing bankruptcy, either. Most retirement funds are protected in bankruptcy. In fact, think carefully before using any of your retirement accounts to pay bills, since filing bankruptcy could potentially wipe out much of that debt anyway.
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Whats Life After Bankruptcy Like How Long Is Chapter 7 Bankruptcy On Your Credit Report
Most people who file Chapter 7 bankruptcy feel a sense of relief that all of their credit card and medical debt, along with other dischargeable debt, is totally gone. Many people see their credit scores improve if they had credit scores in the sub-600 range.
The bankruptcy process often creates a new sense of confidence, where people feel more comfortable with their financial affairs than when they began. Part of the reason is the two required personal finance courses. Chapter 7 bankruptcy also forces you to reflect on your financial situation.
People who file Chapter 7 bankruptcy usually get more serious about budgeting, saving, and rebuilding their credit, using tools like credit builder loans and secured credit cards.
Chapter 7 bankruptcy stays on your credit report for 10 years, but many people who file see their credit improve and are able to get approved for a mortgage within a few years if they make good financial decisions post-bankruptcy.
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Before Doing Anything Else Decide If Filing Bankruptcy Is Right For You
Before jumping in, you need to determine whether filing bankruptcy will help you. Bankruptcy is a powerful debt relief tool that’s helped many people, but you’ll have to decide if it makes sense for your financial situation.
A bankruptcy discharge does not wipe out certain non-dischargeable debts like most student loans, child support obligations, alimony, and recent tax debts. If you have any cosigners, they will not be protected by your personal bankruptcy.
If you have great credit when your Chapter 7 bankruptcy is first filed, your . Most people are able to rebuild their credit and have a better score within a year of getting their bankruptcy discharge.
Anyone can file Chapter 7 bankruptcy without a lawyer. Here is an overview of the steps you’ll need to take to obtain your fresh start.
A Quick History Of Bankruptcy
The term bankruptcy probably came from the Italian phrase banca rottawhich literally means broken benchbecause in medieval days, if a merchant couldnt pay their creditors, they could come break the merchants market stall .1
What about bankruptcy in America, specifically? Well, several different bankruptcy acts popped up during times of economic crisis before the Bankruptcy Act of 1898. This one said bankruptcy didnt require the creditors approval and stuck around until the Bankruptcy Reform Act of 1978which set the laws we follow today.
Now when you file for bankruptcy, no ones coming to smash your bench , but its still a painful experience.
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Should I File Chapter 7 Bankruptcy Right Now
Some signs that you may be a good fit for filing bankruptcy now:
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You have more than $10,000 of dischargeable debt
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Your credit score is already low
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You donât own expensive property
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Keeping up with payments is making it impossible to make ends meet every month
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Youâre worried about wage garnishment or being sued for your debt
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You pass the means test because you earn under the median income in your state
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You donât see a way of being able to pay back your debt over the next 5 years
If these apply, right now may be the right time to file for bankruptcy.
Timing A Bankruptcy Filing Wisely Can Have A Significant Impact On Your Future
By Stephen Elias, Attorney
COVID-19 Updates: Retirement Accounts Stimulus Funds Online Filings
If you’re worried that you make too much to qualify for bankruptcy, CARES Act provisions ensure that receiving stimulus funds won’t affect your ability to obtain a discharge.
Also, rest assured that you can file safely. Many bankruptcy lawyers will consult with you virtually, and bankruptcy filers now appear at the 341 meeting of creditors by video or telephonically. Check the U.S. Trustee’s 341 meeting status webpage or go to your court’s website for details.
In some situations, it makes sense to hold off on filing for Chapter 7 or Chapter 13 bankruptcy. Sometimes, filing bankruptcy too early can mean losing property you would have otherwise been able to keep, or having to file for Chapter 13 instead of Chapter 7. Other times, you may be able to deal with debt in other ways, and avoid bankruptcy altogether. Read on to learn more about several situations when it might be beneficial to delay bankruptcy.
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Are Bankruptcy Filings Publicly Available
Bankruptcies are considered a public record, but that doesn’t mean everyone’s going to know about it. Bankruptcy proceedings are filed in a system called Public Access to Court Electronic Records, or PACER for short.
For the most part, it’s more common for attorneys and creditors to use this system to look up information about your bankruptcy. But anyone can register and check if they want to. The service charges 10 cents per page to access case information.
Another way people might find out about your bankruptcy is if your local newspaper publishes public notices.
Finally, employers, landlords and creditors may be able to see on your credit report that you’ve filed bankruptcy when you apply for a job, an apartment lease, or a loan or credit card.
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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What Are The First Steps For Bankruptcy Filing
If you have come to the decision that filing for bankruptcy is the right choice for you and your business, then it is super important that you handle the filing process the right way. First, you need to consult with a bankruptcy attorney, like Van Horn Law Group, who handles business bankruptcy filings. Do not try to file for bankruptcy yourself! It can lead to some pretty serious financial and legal issues. Instead, it is super important that you choose a bankruptcy attorney who can help make the filing process as simple and seamless for you as possible.
Once you have met with your bankruptcy attorney, you will likely need to fill out some forms or worksheets and provide some documentation in order to complete the petition that you give to the court to ask the judge to grant your business the chapter of bankruptcy you and your attorney have decided to file. You will also likely create some payment schedules with your attorney to address repayment and other issues around your bankruptcy.
What Debt Can’t Be Erased
Chapter 7 bankruptcy cannot erase the following types of debts:
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Child support and alimony
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Recent tax debts and other debts you owe the government like fines
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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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You Can Keep Some Propertybut Maybe Not All Of It
In addition to the loss of collateral property that secures a loan, you can keep or lose property depending on its status as “exempt” or “non-exempt” property. When you file for bankruptcy, you can keep a certain amount of exempt property, such as the equity in your home. However, property that isn’t exempt can be sold by the bankruptcy trustee to pay off some or all your creditors.
The type of bankruptcy you choose also matters for purposes of determining what property you can keep. If you file for a Chapter 7 bankruptcy, you risk losing your non-exempt property to pay off your debts. If you file under Chapter 13 instead, you can keep all of your property, but you’ll have to repay your creditors the value of any non-exempt property through a repayment plan that is administered by a trustee.
Every state has its own specific bankruptcy exemptions, so be sure to check the ones where you live. For example, in Virginia, you can exempt $5,000 plus $500 per dependent for residential property or personal property. If you’re over 65 or a disabled veteran, that exemption goes up to $10,000. Starting in July 2020, Virginians will be able to exempt an additional $25,000 of real or personal property used as a principal residence.
What Happens After I File For Bankruptcy
After you complete the process of filing for personal bankruptcy, there is an immediate stay of proceedings in any legal cases against you regarding your debt. This part of the process protects you from unsecured creditors who might wish to begin or continue any legal actions against you, such as wage garnishees and lawsuits. Creditors are also barred from contacting you after you have filed.
Within five days of filing your bankruptcy documents with the Office of the Superintendent of Bankruptcy, your Trustee will send a copy of the bankruptcy paperwork to all creditors so they can begin the process of filing their claims.
Your Trustee will also file any outstanding tax returns up until the date of bankruptcy. Any outstanding balances or penalties will be included.
After your personal bankruptcy paperwork is complete, you will have obligations such as providing monthly income statements and attending credit counseling sessions.
When your bankruptcy is discharged, the debts included in the bankruptcy will be cancelled. A notation about your bankruptcy will remain on your credit report for approximately six years after the date of discharge. As soon as your bankruptcy is discharged you can begin rebuilding your credit.
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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:
If You Have An Opportunity To Modify Your Mortgage
These days, many people file for bankruptcy to delay a foreclosure. While bankruptcy can be a good solution in this situation, many people file much earlier than they need to, which makes it more difficult to obtain a mortgage modification. Once you file for bankruptcy, many lenders will refuse to enter into or continue negotiations over your mortgage. Because your bankruptcy will cancel the promissory note part of your mortgage , technically there will be nothing left to negotiate. If you might want to seek a mortgage modification in the future, you probably should avoid bankruptcy — at least until you know which way the modification winds are blowing.
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Is A Lawyer Necessary
Unlike corporations and partnerships, individuals can file for bankruptcy without an attorney. It’s called filling the case “pro se.” But because filing for bankruptcy is complex, and must be done correctly to succeed, it’s generally unwise to attempt it without the help of an attorney experienced in bankruptcy proceedings.
Even the Internal Revenue Service is sometimes willing to negotiate. You may be able to reduce the amount you owe in taxes or spread your payments out over time.
Mail Documents To Your Trustee
The Chapter 7 trustee is an official appointed by the court to oversee your case and liquidate, or sell, nonexempt property for the benefit of your creditors. Not all types of bankruptcy require the involvement of a bankruptcy trustee, but both Chapter 7 and Chapter 13 cases have one.
Pay attention to mail you receive from the trustee after filing your case. The trustee will send you a letter asking you to mail them certain financial documents, like tax returns, pay stubs, and bank statements. If you donât send the trustee the requested documents following the instructions provided in their letter, you may not get a discharge of your debts.
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