Complete The Bankruptcy Forms
The bankruptcy forms include at least 23 separate forms, totaling roughly 70 pages. The bankruptcy forms ask you about everything you make, spend, own, and owe. Youâll also include some bankruptcy basics, like what type of bankruptcy youâre filing under and whether a bankruptcy lawyer is helping you.
If you hire a lawyer, they will complete the forms for you based on the information you submit to their office. If you can’t afford to hire a lawyer but don’t feel comfortable completing the forms on your own, see if you’re eligible to use Upsolve’s free online bankruptcy service or schedule an appointment with a legal aid provider in your area.
Is It Better To File For Chapter 7 Or Chapter 13 Bankruptcy
There are advantages and disadvantages to filing for both Chapter 7 and Chapter 13 bankruptcy. What is best for your situation will depend on you and your familys unique circumstances and needs. As a result, you must consider various factors in deciding whether to file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy Basics
A Chapter 7 bankruptcy discharge is designed to give people a genuinely fresh financial start by eliminating all their eligible debts. Although some of your property is exempt in bankruptcy, meaning that you can keep them even if you file for bankruptcy, some property is not. In a Chapter 7 bankruptcy, any non-exempt property is taken and sold to pay your debts. You are not required to pay any remaining balances on your debts after the proceeds of your non-exempt property are applied or if you have no such property. As an example, in California in the year 2020, real property and personal property are exempt.
Advantages of Chapter 7 Bankruptcy
Once you file for Chapter 7 bankruptcy proceedings, you have immediate protection from creditors garnishing your wages or otherwise attempting to pursue you for debts that you owe. A Chapter 7 bankruptcy filing stops these creditors from taking any collection actions against you until the bankruptcy judge authorizes it. Plus, any wages or property that you earn or gain after filing for bankruptcy belongs to you, not your creditors.
Chapter 13 Bankruptcy Basics
Advantages of Chapter 13 Bankruptcy
How Do Your Clients Get Back On Their Feet After Successfully Completing A Chapter 7 Or Chapter 13 Bankruptcy
The best way for a person to get back on their feet after successfully completing a Chapter 7 or Chapter 13 bankruptcy is by paying bills on time. If you are able to control spending, we recommend obtaining a secured credit card after filing. It is important to make credit card payments on time and at no point during the month should your balance be more than 30% of your credit limit. Maxing out your credit card every month, even if you pay on time and in full, actually harms your credit score.
Many people wonder how long after filing for bankruptcy they will have to wait before buying a house. I explain that qualifying for a mortgage involves a lot more than just a consideration of the credit score it involves an analysis of work history, prior foreclosures, and other factors. A prior client of ours was able to purchase a house with a fairly good interest rate even before we finalized his bankruptcy case this was possible because he had a good work history and his bankruptcy only involved an issue with taxes.
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What Does The Chapter 13 Bankruptcy Process Entail
Once we file for Chapter 13 bankruptcy, the client will attend the 341 meeting of creditors. This usually involves two or three minutes in the so-called hot seat, and I will be right there with you. Thirty days after filing the petition, the client begins making payments in accordance with the Chapter 13 payment plan, which can last anywhere from three to five years . During this time, the client can begin rebuilding their credit by making mortgage payments on time and/or by obtaining a secured credit card after filing.
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Myth #: Most People Do Not Qualify For Bankruptcy Because Of The Means Test
This is not true. When the new bankruptcy laws passed in 2005, many debtors became frantic. Creditors tried to convince the country that bankruptcy would only apply to a small percentage of poor and destitute people. This was a massive fabrication of the new laws. In reality, the 2005 legislation changed the method in which debtors qualify for bankruptcy under the Means Test, but it did not prevent people from filing.
In fact, bankruptcy filings have actually increased since the new laws were enacted, especially in light of the foreclosure crisis. Dont believe what you hear whether on television, in the paper, or from friends or family members. To learn the truth about the current bankruptcy laws under Chapter 7 and Chapter 13, give our Firm a call.
Myth #: You Will Never Get Credit Again If You File For Bankruptcy
Not true. Although a bankruptcy can stay on your credit report for up 10 years from the date of filing, you can start rebuilding your credit as soon as your bankruptcy is closed and discharged. Many of our clients purchase new homes, vehicles, and even qualify for credit cards a few months after the bankruptcy is concluded. In fact, many creditors will start offering credit right after the discharge. With proper planning and counseling, you can get new credit much sooner than expected.
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How Much And How Soon Credit Scores Can Rise
Using data from Equifax credit bureau, researchers at the Federal Reserve Bank of Philadelphia found that filers Equifax credit scores plunged in the 18 months before filing bankruptcy and rose steadily afterward.
Among the findings:
The average credit score for someone who filed Chapter 7, the most common type of bankruptcy, in 2010 was 538.2 on Equifaxs 280 to 850 range. By the time the filers cases were discharged, usually within six months, their average score was 620.3.
The other type of bankruptcy, Chapter 13, requires a three- to five-year repayment plan, which most people dont complete. Those who did and got a discharge, though, saw their scores rise from 535.2 to 610.8, the Philadelphia Fed researchers found.
A recent study by FICO, the company that created the leading credit score, found much smaller gains. Median credit scores for people who filed for bankruptcy between October 2009 and October 2010 rose from the 550s before they filed to the 560s afterward, says Ethan Dornhelm, senior director for FICOs scores and analytics group.
After two years, 28% of bankruptcy filers had scores of 620 and above. After four years, 48% had scores of 620 or above, and only 1% scored 700 or above.
What Are Todays Mortgage Rates
Todays mortgage rates are at historic lows.
Typically, home buyers applying after Chapter 7 bankruptcy will be charged higher interest rates. But shopping around in todays lowrate market could help you net a fair deal on your home loan.
If youre thinking about buying a home, check with a few mortgage lenders to verify your home loan eligibility and find out what rates you qualify for.
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Boost Your Down Payment
Its possible to get a mortgage even with a bankruptcy showing on your credit report and a low credit score. But, the catch is that lenders will want you to offset that with a bigger down payment. In the first two years after your bankruptcy is discharged, you must have at least a 20% down payment and the bigger, the better. After two years have passed, as long as youve been working to make your credit as strong as possible at the same time, you can start to look at buying a place with a down payment of as little as 10% of the purchase price. Less than 10% is possible, but it gets trickier, so I really recommend you shoot for at least 10% down.
Can You Get Credit After A Bankruptcy
Myth: You cant get a credit card or loan after bankruptcy.
The truth: Credit cards are one of the best ways to build credit, and there are options out there for those with a checkered credit history. Secured credit cards, which require an upfront security deposit, have a lower barrier of entry but spend and build credit just like a traditional card.
Similarly, there are loans availablesuch as passbook, CD or that are secured with a deposit or collateral and help you build credit as you pay them off. Like secured credit cards, these loans are much easier to come by because the lender is protected in the event you cant pay. Do note that you may need to get permission from the court to take on new debt during a Chapter 13 repayment plan.
Should I Wait The 7 Years For The Bad Debt To Fall Off My Credit Score Or Should I File For Bankruptcy
- Posted on Jan 12, 2016
A credit score is just a number a means to an end. Other factors like your goals and assets should be analyzed too. The statute of limitations for a written debt is 4 years so collection agencies will try to sue by the third year. If they win a lawsuit they can start garnishing your wages. Defending one such lawsuit is expensive often more than a bankruptcy filing.A bankruptcy has a negative impact on your score but will stop credit card companies from garnishing your wages.If you have not paid large amounts of debts in a year and cannot pay it in the future you should consider bankruptcy. Only a bankruptcy attorney can look at your financial situation and goals and give you advice on whether and when to file.
The Chapter 13 Discharge
The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the chapter 13 discharge.
A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: certifies that all domestic support obligations that came due prior to making such certification have been paid has not received a discharge in a prior case filed within a certain time frame and has completed an approved course in financial management . 11 U.S.C. § 1328. The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption. 11 U.S.C. § 1328.
The discharge releases the debtor from all debts provided for by the plan or disallowed , with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
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If You Have Property You Don’t Want To Lose
You may have property that you would lose in a Chapter 7 bankruptcy if you file now, but that you could keep if you wait — or at least have time to sell and use the proceeds. For example:
- Tax Refunds. Assume you are expecting a tax refund of $4,000. You would have to surrender it to the bankruptcy trustee if you receive it after you file. However, if you first get your tax refund, spend it over a few months on necessities, and then file for bankruptcy, you would have the full benefit of the refund.
- Property Exceeding the Exemption Maximum. Assume you have assets that are worth more than the amount you’re allowed to keep in bankruptcy through “property exemptions.” If you wait a few months to file, the property could sufficiently depreciate in value to fall within a property exemption. For instance, say you own a car worth $6,000 but your state exemption laws allow you to keep a car with a value only up to $5,500. If you wait a few months, the car’s value could drop by enough to bring it within the exemption.
- Nonexempt Assets. Assume that you have assets that aren’t exempt — that is, the bankruptcy trustee can take the property and sell it to pay off your creditors. If you sell the property for its fair market value before you file for bankruptcy, and then spend the proceeds on necessities, you, rather than your creditors, would benefit from the property.
Bankruptcy In The United States
Like the economy, bankruptcy filings in the U.S. rise and fall. In fact, they are like dance partners where one goes, the other usually follows.
Bankruptcy peaked with just more than two million filings in 2005. That is the same year the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. That law was meant to stem the tide of consumers and businesses too eager to simply walk away from their debts.
The number of filings dropped 70% in 2006, but then the Great Recession brought the economy to its knees and bankruptcy filings spiked to 1.6 million in 2010. They retreated again as the economy improved, but the COVID-19 pandemic easily could reverse the trend in 2021. It seems inevitable that many individuals and small businesses will declare bankruptcy.
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Debt Settlement Vs Bankruptcy: Which Is Better
If everyone in debt found themselves in the same predicament, there might be a blanket answer to this question. Of course, thats not the case, and where debt settlement may be the right option in one situation, bankruptcy might be preferable in another. And in a third scenario, neither may be the best solution.
The bad news is that resolving serious debt woes is not a one-size-fits-all proposition. The good news is that there are many potential routes out of debt, and a nonprofit credit counselor such as the ones at InCharge Debt Solutions are well-equipped to help point you in the right direction whether it be debt settlement, bankruptcy, or other debt relief options such as debt consolidation.
Before choosing a particular option, speak with a credit counselor at InCharge, who can evaluate your specific situation and discuss the pros and cons that each potential solution offers.
If bankruptcy is ultimately determined the best option for escaping your debt crisis, InCharge Debt Solutions offers bankruptcy education classes that allow you to complete the credit counseling and debtor education requirements for entering and exiting bankruptcy. The classes, which include online instruction and a personal counseling session via telephone, provide advice on your current financial situation and instruction on money management, budgeting and how to develop and stick to a plan that will lead to a brighter financial future.
Apply For A Secured Credit Card
Secured credit cards are designed for people with bad or no credit. These cards require you to make an up-front deposit typically between $200 and $1,000 as a guarantee against the card’s line of credit. Your credit limit on the account will usually match the deposit. For example, if a card requires a $750 deposit, your credit limit will be $750.
There are a handful of secured credit cards, though, that require only a nominal security deposit and charge no annual fee, yet provide a higher line of credit, like the Capital One Platinum Secured Credit Card. The deposit is returned if you close the account with a zero balance.
Tip: The annual percentage rates on secured credit cards are typically higher than average, so carrying a balance is prohibitively expensive. The key is to use the card responsibly, charging no more than 30% of the credit limit and paying off the balance each month in full.
Here are a few features to look out for on secured credit cards:
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What Is A Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also called debt consolidation, debt restructure, or wage-earner bankruptcy. If a client has an auto loan with an outrageous interest rate of 28 percent, we may be able to decrease that interest rate to a fair market interest rate. This may allow us to reduce the auto loan payment in most cases. If the client has had their vehicle for more than 910 days or 2.5 years, then the creditor would only need to be paid the actual value of the vehicle, which can potentially save people a lot of money on their vehicle loan.
Chapter 13 bankruptcy is also an option for debtors who don’t qualify for Chapter 7 bankruptcy because of above median income. For example, if someone has a really great job with above median income, we can usually propose a payment plan to minimize and consolidate unsecured creditors while hopefully decreasing the monthly payment to secured creditors. Additionally, through Chapter 13 bankruptcy, we can deal with tax debt, and no additional late fees or interest charges will be accrued while paying off priority debts.