Pros Of Chapter 13 Bankruptcy
No Means Test
Unlike chapter 7, in Chapter 13, you dont need to worry about the means test. Therefore, there is no limit of maximum income that restricts you from filing for bankruptcy.
Generally, individuals pick chapter 13 when they have a lot of disposable income as well as significant debts. Therefore, chapter 13 doesnt require you to pass any test to get bankruptcy relief.
Although you have to pay monthly payments for several years, payments are within your budget. The court designs a realistic payment plan so that you dont have to take more debts to make the payments.
Most importantly, the interest rate of your new payment plan is much lower than the one you had to pay before. This helps you cut down some of your debts and pay a specific amount. Plus, you need to pay off your debt in a particular duration of three to five years.
No Asset Liquidation
In chapter 7, you have to lose some of your property to pay the amount you owe to creditors. However, in the case of chapter 13, bankruptcy allows you to keep every single asset as long as you make the designated monthly payments at a specific time.
Shorter Life on Credit Record
As you know, your credit history will be impacted by bankruptcy. But chapter 13 has less effect on your credit than chapter 7. This is because it stays on your credit for only seven years. After that, it will be pretty easy to get credit and loans.
Contact A Licensed Insolvency Trustee
The next step is to seek advice from a professional authorized to administer government-regulated insolvency proceedings. Only a Licensed Insolvency Trustee can stop ongoing and pending legal and collection action, including lawsuits and garnishees. Bankruptcy is just one possible debt solution. An LIT will explain the merits and outcomes of various options available to you. Contact your local MNP LIT for a free consultation to discuss the appropriate life-changing debt solution for your unique situation.
Should I File For Bankruptcy After A Repo
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In a Nutshell
Filing for bankruptcy after a car repo can get rid of any remaining debts that you have for your car.
Losing a vehicle because you cannot pay the car loan payments is frustrating. However, should you file for bankruptcy after a repo? Can filing a Chapter 7 get your car back after a repo? Will Chapter 13 save my car from repossession? We explore these questions and others in this article.
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What Is The Downside Of Filing For Bankruptcy
Filing for bankruptcy protection is considered a statement on your ability to repay your debt to your creditors. The fact that you sought and received bankruptcy protection will remain on your credit record for as long as 10 years. Additional factors regarding what is the downside of filing for bankruptcy can include:
- Filing for bankruptcy can negatively impact your immediate financial future.
- Obtaining credit after filing for bankruptcy could mean increased interest rates.
- Obtaining credit after filing for bankruptcy might require security deposits.
Filing for bankruptcy can give you the opportunity to start over and create a new financial reality for you and your family. It can also come with many downsides that you should be aware of in order to make a fully informed decision.
In addition to these credit issues, certain bankruptcy filings will leave you with nondischargeable debt that must still be paid back. Nondischargeable debt can include property debt, tax debt, student loans, spousal support, child support, and criminal debt. While some bankruptcy chapters will allow you to manage many of these nondischargeable debts more readily, they will not be dismissed or discharged.
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What Is The Difference Between Default And Bankruptcy
Defaulting on a loan means that youve violated the promissory or cardholder agreement with the lender to make payments on time. Each lender has its own requirements surrounding how many missed payments you can have before it considers you in default. In some cases, that may be as little as one missed payment or it can be as many as nine missed payments.
Filing for bankruptcy, on the other hand, is a legal process that involves listing out your debts and assets and finding a way to resolve the debts. A judge will decide if any of your debts can be discharged and if your assets will be used to pay off the outstanding balance. The judge will also decide which assets youre allowed to keep and which can be taken from you.
Default and bankruptcy usually go hand in hand. Many borrowers default on their loans and then subsequently file for bankruptcy.
The Bankruptcy Filing Process
There are a number of legally required steps involved in filing for bankruptcy. Failing to complete them can result in the dismissal of your case.
Before filing for bankruptcy, individuals are required to complete a credit counseling session and obtain a certificate to file with their bankruptcy petition. The counselor should review your personal situation, offer advice on budgeting and debt management, and discuss alternatives to bankruptcy. You can find the names of government-approved credit counseling agencies in your area by calling the federal bankruptcy court closest to you or by visiting its website.
Filing for bankruptcy involves submitting a bankruptcy petition and financial statements showing your income, debts, and assets. You will also be required to submit a means test form, which determines whether your income is low enough for you to qualify for Chapter 7. If it isnt, you will have to file for Chapter 13 bankruptcy instead. You will also need to pay a filing fee, though it is sometimes waived if you can prove you cant afford it.
You can obtain the forms you need from the bankruptcy court. If you engage the services of a bankruptcy lawyer, which is usually a good idea, they should also be able to provide them.
Assuming the court decides in your favor, your debts will be discharged, in the case of Chapter 7. In Chapter 13, a repayment plan will be approved. Having debt discharged means that the creditor can no longer attempt to collect it from you.
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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.
Will Chapter 7 Stop Foreclosure
Chapter 7 bankruptcy is a way that debtors get rid of their debts. Chapter 7 bankruptcy will not, in the end, prevent a foreclosure on your home. But, once you file for Chapter 7 bankruptcy, the bankruptcy court will order an automatic stay, which will put a hold on the foreclosure while the bankruptcy case is pending.
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How Will Bankruptcy Affect My Credit Score
Credit scores are based on a multitude of factors. One of the factors that determine the credit score is the amount of debt a person has. Bankruptcy can assist with this by discharging debt a borrower may otherwise be obligated to pay. Another factor is open credit accounts with late payments these accounts can significantly reduce your credit score. Fortunately, bankruptcy can assist with this aspect as well. If the debt is discharged in bankruptcy, the account should no longer be reported as an open delinquent account. For more information on how bankruptcy affects credit scores and how the score is calculated,
The bankruptcy filing may last on your credit report for a few years. If you completed a Chapter 13 bankruptcy, the filing might remain on your credit report for seven years. On the other hand, Chapter 7 bankruptcy will stay on your credit report for up to 10 years. See MyFico.com.
If bankruptcy is on your credit, it does not mean you will be prevented from acquiring new debt. For instance, the waiting period for a mortgage may be a lot sooner. Many car loan lenders will have no waiting period at all you may get a loan the very next day. The FHA and Veteranâs Association allows borrowers to qualify for a mortgage in just two years after the discharge. See FHA Regulation 4155.4.
How To File Chapter 7 Bankruptcy
Filing Chapter 7 bankruptcy involves collecting information about yourself and using this information to fill out your bankruptcy forms. Whether you plan on filing now or aren’t sure yet, check out Upsolve’s 10-Step Guide on How to File Bankruptcy for Free to learn more about how to prepare for and file a Chapter 7 bankruptcy case.
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Advantages And Disadvantages Of Bankruptcy
Bankruptcy chapters 7 and 13 are the two avenues individuals can use to clear their debts through the courts. Chapter 7 eliminates your debts, but in some states it might require you to liquidate all you own, including your car and house, to help compensate your creditors.
Chapter 13 protects your home from foreclosure but requires that you partially repay creditors over a 3-5 year period. Because it requires repayment, it is often called wage earners bankruptcy.
Both chapters will cause long-lasting damage to your credit report. In addition, student loan debt, income taxes and child support payments cant be discharged in bankruptcy, so you will still be obligated to repay them.
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.
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When You Might Want To File After Getting Married
If you and your spouse both have a significant amount of debt, you may want to file for bankruptcy together after you get married. This will allow you to save money on court costs and legal fees because you’ll only need to file one case. You’ll also save time on meetings with trustees and creditors.
It’s important to note that if you go this route and you or your spouse has significant property assets, they’ll be a part of your bankruptcy sale. In this situation, it’s a good idea to file for bankruptcy individually so you can protect these assets.
Is It Better To File Bankruptcy Before Or After Marriage
When you’re getting married, you or your partner’s financial struggles are likely the last thing you want to think about. But if one of you is overwhelmed with debt and on the verge of bankruptcy, it’s necessary to figure this out before you tie the knotand tie together your finances.
Bankruptcy can allow you to eliminate all or part of your debt. It can also help you repay a portion of what you owe. When you file bankruptcy, you’ll get creditors off your back but your credit health will take a major hit, which means borrowing in the future will be much harder if not impossible. And getting married can complicate the process, so it’s a decision you or your spouse should make before your wedding date.
If bankruptcy and marriage both lie ahead, you may be wondering which should happen first. Whether a bankruptcy filing should come before or after marriage will depend on you and your partner’s unique situation and circumstances.
How To Assess Your Financial Situation
Here are a few questions to help you assess your financial danger zone:
- Do you only make minimum payments on your credit cards?
- Are bill collectors calling you?
- Does the thought of sorting out your finances make you feel scared or out of control?
- Do you use credit cards to pay for necessities?
- Are you considering debt consolidation?
- Are you unsure how much you actually owe?
If you answered yes to two or more of the questions above, you at least want to give your financial situation a little more thought. Simply put, bankruptcy is when you owe more than you can afford to pay.
To determine where you are financially, inventory all of your liquid assets. Don’t forget to include retirement funds, stocks, bonds, real estate, vehicles, college savings accounts, and other non-bank account funds. Add up a rough estimate for each item.
Then, collect and add up your bills and credit statements. If the value of your assets is less than the amount of debt you owe, declaring bankruptcy may be one way out of a sticky financial situation. However, bankruptcy shouldn’t be approached casually. After all, it’s not a simple, easy cure-all for out-of-control debt.
Balance Transfer Credit Card
If you have credit card debt on a card with a high APR, try transferring the balance to a card that offers 0% interest APR. This lets you pay down the balance without being charged any interest.
Most of these special APR offers last between 12 and 20 months, depending on the cards terms. When the special offer is over, a regular interest rate will kick in, so its best to make as many payments as you can during the introductory period.
Using a balance transfer credit card to address debt can both help and hurt your overall credit score. It can help your score by reducing your overall credit utilization rate, which is the amount of your available credit in use. This is important because your credit utilization rate accounts for 30 percent of your credit score.
If you add more available credit without increasing the total amount of debt you owe, that lowers your credit utilization rate, which increases your credit score, says Sullivan. So, if you do a balance transfer and keep the old cards open but do not use them, your credit score will start to improve.
However, opening a new credit card can also negatively impact your score. When you apply for a credit card, there will be a hard inquiry on your credit report, which can reduce your score. Hard inquiries may stay on your report for as long as two years, though their impact on your credit score will likely decrease before then.
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Can I Keep My Car Or Other Property
What happens to other property during a bankruptcy proceeding will depend on:
- What you’ve done with it
- The property exemption laws that are available to you
For example, if you put up your boat as collateral on a loan, it makes that loan secured. The creditor may still be able to take your property even if you are in bankruptcy.
Also, only certain types of property are protected by exemption laws in Chapter 7 bankruptcies. Many people are able to keep a car because of state exemptions, but whether you can keep yours depends on the amount of debt and equity you have in it.