Who Is Eligible For Chapter 7 Bankruptcy
Even if you are in dire financial straits, Chapter 7 may not be for you. Applicants must clear assorted hurdles before a bankruptcy court approves the filing. Among them:
- As mentioned above, applicants must complete a debt counseling course with an approved credit counseling agency no more than 180 days before filing.
- You cannot have filed a Chapter 7 bankruptcy within the previous eight years.
- You cannot have filed a Chapter 13 bankruptcy within the previous six years.
- Filers for Chapter 7 or Chapter 13 bankruptcy whose cases were dismissed must wait at least 181 days before another attempt.
- Also as mentioned above, filers must undergo a test of financial scrutiny. Either your average monthly income for the previous six months must be less than the median income for a household of the same size in your state or you must pass a means test to determine whether you have sufficient disposable income to make partial payments to unsecured creditors.
- Filers who fail the means test may still be able to file a Chapter 13 bankruptcy.
- Even if you are able to file, but the court determines youre attempting to defraud your creditors, the court may dismiss your case.
What Are The Advantages Of Filing For Bankruptcy
There are several advantages to filing for bankruptcy.
You may be able to keep many of your assets, although state laws vary widely in defining which assets you may keep.
Collection efforts must stop as soon as you file for bankruptcy under Chapter 7 or Chapter 13. As soon as your petition is filed, there is by law an automatic stay, which prohibits most collection activity. If a creditor continues to try to collect the debt, the creditor may be cited for contempt of court or ordered to pay damages. The stay applies even to the loan that you may have obtained to buy your car. If you continue to make payments, it is unlikely that your creditor will do anything. However, if you miss payments your creditor will probably petition to have the stay lifted in order either to repossess the car or to renegotiate the loan.
You cannot be fired from your job solely because you filed for bankruptcy.
What You Must Avoid Before Filing Chapter 7 Bankruptcy
Theres some protocol to follow in the months before filing for bankruptcy. Failing to follow these instructions could undermine your efforts. Heres what not to do in the run-up to filing Chapter 7.
Dont Pay Creditors Sounds weird, right? Hear us out. To the extent you can, continue to make routine payments. But any large or unusual payments could be viewed as preferential transfers. That means one creditor has benefited unfairly over others.
No New Debt A new creditor could claim you took out a loan or ran up the balance on a credit card without intending to pay it back. Legally, thats fraud and it will not be forgiven.
No Unusual Transactions Dont stray from the routine. Dont transfer titles of cars or homes. Dont buy luxury goods. Dont transfer your business or remove your name from it. Each of these activities can be classified as fraud.
Be Truthful and Complete You are required, while filing for bankruptcy, to provide full and complete information. You must disclose any debt, assets, accounts or other financial information.
It is important not to destroy any financial documents or records related to the filer’s debt, Sinha says. The court will look at a filer’s recent financial transactions to determine if they were made with the intent to fraudulently avoid paying their debts.
Adds Solomon, People use many wrong tricks to hide their assets before filing for bankruptcy, but they don’t know all these tricks can be caught easily by the trustee.
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What Exactly Is Bankruptcy
Bankruptcy is a legal process through which people and businesses can obtain a fresh financial start when they are in such financial difficulty that they can not repay their debts as agreed. The fresh start is achieved by eliminating all or a portion of existing debts and/or by stretching out the monthly payments under the protection and supervision of a court. The process is also designed to protect creditors, because general unsecured creditors share equally in whatever payments the debtor can afford to make.
Chapter 7 Bankruptcy Discharge
The successful conclusion of a Chapter 7 bankruptcy involves a discharge, what the Administrative Office of the U.S. Courts describes as a release individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor.
Remember, however, the limits of the sorts of debts that can be discharged in a Chapter 7 bankruptcy. Filers who have retained an attorney to see them through the process will have an opportunity to review what, if any, obligations remain after a successful discharge.
As noted earlier, all but a tiny percentage of attorney-supported Chapter 7 filings are discharged. However, the court takes an aggressively dim view of Chapter 7 applicants who are found to be pulling a fast one.
Chapter 7 filings can be rejected for a variety of reasons, among them: debts for money/property acquired by false pretenses debts for fraud debts for malicious injury when contested by the injured creditor or debtor, without satisfactory explanation, makes a material misstatement or fails to provide documents/information related to an audit of the debtors case.
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Advantages To A Chapter 7 Bankruptcy
Understand Alternatives To File Bankruptcy
There are many bankruptcy alternatives to consider. We will cover the two most common alternatives, but you can find more in our bankruptcy alternatives article. As a reference, filing Chapter 7 bankruptcy is often the least expensive and the shortest.
Debt Settlement
Debt settlement is also known as debt negotiation, debt relief, or a debt consolidation program . In debt settlement, a company or you will negotiate with your creditors for a lower amount. You can save money and avoid filing bankruptcy. You may also be exposed to lawsuits, so its important to understand which creditors are likely to sue. A debt settlement programs often last 2 – 5 years.
Debt Management
Debt management is also known as credit counseling. In debt management, a company will negotiate with your creditors for a lower percentage interest rate. You can save money on interest and avoid filing bankruptcy. Debt management can be more expensive than debt settlement and Chapter 13. Debt management programs often last 5 years.
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How Does Bankruptcy Work
Bankruptcy is often viewed by people as one of two extremes: a shameful failure or a rich persons escape. Sure, there are high-profile bankruptcy filings, like that of former Texas Governor John Connally, which resulted in the auctioning off of a life-sized 19th-century statue of a patron saint. But most bankruptcy filings are simply a legal and accessible process designed to help you move toward debt relief and away from the financial stress of creditor lawsuits, collection calls, garnishment actions, and foreclosures.
What Are The Pros And Cons Of Filing Chapter 7 Bankruptcy
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In a Nutshell
Filing for bankruptcy offers a powerful way to eliminate debt and get a fresh start. But, as with everything there are downsides to filing bankruptcy, too. Use this article to explore the advantages and drawbacks of Chapter 7 bankruptcy.
Written byAttorney Andrea Wimmer.
Chapter 7 bankruptcy is one of the most powerful debt relief options available in the United States. It has helped many people get out of poverty and get a clean financial slate. It gives you a fresh start by erasing your debts. But filing bankruptcy is a personal decision and itâs important to fully consider whether itâs the right option for you. This article explores the pros and cons of filing Chapter 7 bankruptcy.
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Pros And Cons Of Filing Bankruptcy: What You Need To Know
If youre in debt and cant pay it back, obtain a loan, or dont have anyone to borrow from, it may be time to file bankruptcy.
While it may sound like the obvious solution, there are many pros and cons of filing bankruptcy to consider before you make your decision. Its important that you know them, and what will happen if you file.
In general, there are two types of filings for personal bankruptcy Chapter 7 or Chapter 13.
A Chapter 7 bankruptcy, or liquidation bankruptcy, can erase many types of consumer debt, the most common are credit card debt and medical bills, including car loans, payday loans, and utility bills. These are known as dischargeable debts. It also will halt wage garnishment if youre paying the IRS back taxes.
Under Chapter 7, which is designed to offer a filer a fresh start, debts are removed with the courts approval, but this can take months.
Chapter 7 also has some strict income requirements, which may be difficult to meet.
A Chapter 13 bankruptcy is known as a wage-earners plan. Chapter 13 is for someone with a steady income who repays all or part of their debt through a repayment or installment plan thats spread out over three to five years. Chapter 13 is used by individuals, including those self-employed.
There is no income requirement, but the debt must be below a certain amount and stay on your credit report for seven years.
- Mortgages
- Student loans
Bankruptcy Downside #: New Financing May Be A Challenge
The common conception with bankruptcy is that youll become a credit pariah. Youll be placed on a blacklist and traditional lenders will steer clear. But most of this fear is rooted in myth.
In other words, there are ways to get by as you rebuild credit and work to recover good credit. You can still buy a carand can even get yourself mortgage-ready in a short amount of time. And if you need , you can use secured credit cards if you cant qualify for unsecured cards.
Rhode also explains that getting credit after you file often easier if you file for Chapter 7. Chapter 7 filers have a greater opportunity to acquire unsecured credit from new lenders than Chapter 13 filers do. The rebound in new credit cards occurred more slowly for Chapter 13 filers, possibly because they were using a portion of their income to pay down old debts and because they can file for bankruptcy again more quickly than Chapter 7 filers can.
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What Are The Pros & Cons Of Filing Chapter 7 Bankruptcy
When harassing creditors seem to overwhelm your daily routine, and you find yourself struggling to make ends meet, it may be time to consider filing for bankruptcy. Chapter 7 Bankruptcy is a petition that asks the court to erase your debts and give you a fresh start. It is a straightforward process that wipes the slate clean.
While it may seem easy, there are many things to consider when making this drastic step toward financial freedom. Ask any Northern Kentucky bankruptcy lawyer, and you will find there are both pros and cons to the process.
Bankruptcy Downside #: Not All Debts May Be Discharged
There are certain debts that almost never get discharged, such as back child support or alimony. Tax debt is also not easily discharged, although it depends on the type of tax debt and your situation.
Theres also a common misconception that student loan debt cant be discharged, even if its private. But our expert disagrees.
Some federal student loans and many more private student loans can be discharged through bankruptcy, Rhode says. But many people dont try because they buy into the myth. In truth, large parts of private student loans are not protected in bankruptcy, because trade or vocational programs were not Title IV qualified.
The reason the myth exists is that the federal government did put in some protections for student lenders during consumer bankruptcy filings. The idea was that the government didnt want people running up student debt that they had no intention to repay. The protections extended, not only to federal loans but also private loans as long as the education provided was Title IV qualified.
But this leaves a big loophole for borrowers that lenders would prefer that people didnt know. Namely, theres no harm in trying to get your student loan debt discharged. Even if the education was Title IV qualified, discharge is still possible in cases of extreme financial hardship. So, its worth it to at least ask for discharge.
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Debt Relief Through Bankruptcy
Filing for bankruptcy may be an option for individuals and commercial enterprises in the grip of unmanageable debt. The U.S. Bankruptcy Code is designed to provide a legal avenue to help insolvent individuals and businesses pay off debt and regain financial stability.
At the Law Office of Areya Holder, P.C. in Irving, Texas, our exclusive focus is providing legal advice about bankruptcy and guiding clients through the bankruptcy process. Our firm represents individuals, small businesses and small to medium corporations throughout the Dallas / Fort Worth Metroplex, including Arlington, Plano, Bedford, Hurst, Euless and Grand Prairie, TX . The legal services we offer include a review and thorough evaluation of your finances in order to recommend the most effective legal approach to resolve your debt situation.
As a debt relief agency under the U.S. Bankruptcy Code, our law firm has extensive experience helping clients file for the following types of bankruptcy:
How Often Can You File For Chapter 13
In Chapter 13, often called a wage earners plan, a debtor can pay some or all of their debts under a court-approved plan lasting three to five years.
If your previous bankruptcy case was Chapter 7 and youre seeking to file for Chapter 13 bankruptcy, you typically must wait at least four years after the Chapter 7 bankruptcy was filed. But if your previous bankruptcy case was Chapter 13 and you want to file another Chapter 13 case, the waiting period typically drops to two years from when the previous bankruptcy case was filed.
| Wait Times for Repeat Bankruptcy Filing |
|---|
| Prior Bankruptcy Filing Type |
| 2 years |
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What Should I Do If A Creditor Sues Me
- Do Nothing.
- Doing nothing is an option, but it should not be considered lightly. By doing nothing the court will enter a judgment against you that will usually include the amount that the creditor says is owing on the debt plus the costs the creditor paid to file the lawsuit plus the creditors attorneys fees. Please see the next section, on what may happen as a result of this.
Here Are 13 Pros Of Filing For Bankruptcy
The biggest pro of a bankruptcy filing is that you get a fresh start. If youre feeling overburdened by debt, it could be the relief you need to get back on your feet. Here are the biggest benefits:
1. You are granted an automatic stay
One of the many pros of filing for bankruptcy falls Under Section 362 of the U.S. Bankruptcy Code.
This is an automatic stay that begins as soon as you file for bankruptcy and applies to individuals and businesses under Chapter 7 and Chapter 13.
The automatic stay only applies to the filer and will not apply to any secondary entities such as co-defendants or guarantors.
What are automatic-stay provisions exactly?
These provisions protect a filer against certain creditor actions, which include beginning court proceedings, foreclosure, enforcing a lien on a property, or attempting to repossess the collateral.
The automatic stay applies to debt collection and will also halt any harassing phone calls from debt collectors while the bankruptcy case is pending.
2. Mandatory credit counseling may help you learn from past mistakes
More than just the court saying, youre free, youll be required to take two mandatory credit counseling courses during the bankruptcy process.
Counseling classes will help you learn budgeting and more, so you dont experience the same financial woes in the future.
3. Youll feel immediate relief if youre dealing with multiple creditors
4. A court-appointed bankruptcy trustee will handle most of the work
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