Bankruptcy Is A Powerful Tool For Debtors But Some Kinds Of Debts Can’t Be Wiped Out In Bankruptcy
By Cara O’Neill, Attorney
If you’re facing severe debt problems, filing for bankruptcy can be a powerful remedy. It stops most collection actions, including telephone calls, wage garnishments, and lawsuits . It also eliminates many types of debt, including credit card balances, medical bills, personal loans, and more.
But it doesn’t stop all creditors, and it doesn’t wipe out all obligations. For instance, you’ll still have to pay your student loans and arrearages for child support, alimony, and most tax debts. Read on to learn more about:
- what you can expect in both Chapter 7 and Chapter 13
- the benefits offered by Chapter 13 alone, and
- things that can’t be accomplished by filing for bankruptcy.
If you’d like step-by-step guidance through the bankruptcy process, read What You Need to Know to File for Bankruptcy in 2021.
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.
It Stays On Your Credit Report For Up To 10 Years
Your bankruptcy will remain on your credit report for up to 10 years from the date of discharge. While the impact it will lessen over time, it will undoubtedly be a factor in any financial or career move that requires checking your credit.
Its not all roses after you file bankruptcy, McClary told LendingTree. There are some limitations that youre going to have to face.
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Get Your Life Back Today Not In Years
At Kain & Scott, We dont judge you, we HELP you get your life back! If you jump off the fence and choose bankruptcy to solve an overwhelming debt problem, you get your life back sooner! Think about it, so many good Minnesotans choose some arduous debt consolidation plan and make their family suffer for years on end. If you think you struggle to pay your bills now, let your creditors dictate the repayment terms or they will garnish your wages and you will quickly see who eats first and who eats second. When our guests chose to file bankruptcy, jump off that fence, they are quickly jumping into a fresh start again. The debt worries go away and you can pay your bills on time again. The roof over your head is secure and there are groceries in the fridge. Pushing the reset button and starting fresh allows you to do what you always wanted to do- stay current on your bills and protect your family.
Why File A Consumer Proposal
In recent years consumer proposals have become a very popular option for Canadian consumers facing insolvency and unmanageable debts to unsecured creditors . For those who qualify, a consumer proposal offers the same debt relief as bankruptcy and the same creditor protection.; A Licensed Insolvency Trustee can tell you in-depth about consumer proposal pros and cons, and how it can relieve your debt in your particular situation.
As soon as a consumer proposal is filed, you are protected from your creditors phone calls and letters from creditors will stop.
In 2019, Canadian consumers filed 54,409 bankruptcies and 82,769 consumer proposals. This should tell you that a consumer proposal is often the preferred option for debt relief and also, that you are not alone.
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Things To Consider Before Filing For Bankruptcy
There are other debt-relief solutions than bankruptcy available for people who are struggling financially, but have enough resources to right the ship.
Calling a counselor from a nonprofit credit counseling agency is a good first step. They offer a free counseling service that looks at your finances and discusses the pros and cons of a debt management program, a debt consolidation loan or even debt settlement, any of which might help guide you back to safe ground.
Another step in the right direction would be to get serious about creating and living within a budget. You could supplement your current income with things like taking a second job or trying to sell some assets to pay bills.
Other things to consider before making a final decision: Did I try to negotiate the debt down to manageable numbers? Is my current status permanent or is the situation expected to improve soon?
A final consideration: Do I have a big bill or series of big bills coming due soon? You might want to hold off on paying that until you decide whether or not to file bankruptcy since those bills could be dismissed through bankruptcy.
Here are some other questions you need to answer before making a decision on whether you want to file bankruptcy.
Why Choose Bradford Law Offices Pllc For Your Chapter 7 Bankruptcy
Danny Bradford has been helping people facing overwhelming debt since 1996, and in that time has represented over 3,000 consumer debtors. Over 70% of his clients have been married or individual debtors like you, so you can relax knowing you are in good, experienced hands. Attorney Bradford is a member of the Wake County Bar, bankruptcy section of the North Carolina Bar Association, and National Association of Consumer Bankruptcy Attorneys.
Over twenty years spent working with both individuals and businesses has taught us at Bradford Law Offices, PLLC that every case is unique. We will never try to apply a one-size-fits-all approach to your case. We will take the time to truly listen to you, understand your situation, and determine the best possible solution for you. When you work with Bradford Law Offices, PLLC, you receive legal services that are informed, compassionate and focused on helping you reach the best possible result in your Chapter 7 proceeding.
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What Bankruptcy Can’t Do
Bankruptcy doesn’t cure all debt problems. Here’s what it can’t do for you.
Prevent a secured creditor from foreclosing or repossessing property you can’t afford. A bankruptcy discharge eliminates debts, but it doesn’t eliminate liens. A lien allows the lender to take property, sell it at auction, and apply the proceeds to a loan balance. The lien stays on the property until the debt gets paid. If you have a secured debta debt where the creditor has a lien on your propertybankruptcy can eliminate your obligation to pay the debt. However, it won’t take the lien off the propertythe creditor can still recover the collateral. For example, if you file for Chapter 7, you can wipe out a home mortgage. But the lender’s lien will remain on the home. As long as the mortgage remains unpaid, the lender can exercise its lien rights to foreclose on the house once the automatic stay lifts.
Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy, so you’ll continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, you’ll have to pay these debts in full through your plan.
Eliminate most tax debts. Eliminating tax debt in bankruptcy isn’t easy, but it’s sometimes possible for older unpaid tax debts. Learn what’s needed to eliminate tax debts in bankruptcy.
Eliminate other nondischargeable debts. The following debts aren’t dischargeable under either chapter:
Consider All Your Options
Because of the severe implications, bankruptcy should be seen as a last resort, according to McClary in situations where youve explored all your other options and youre left with the decision to file bankruptcy,; he said, you could benefit from either total or partial liquidation of the debts that you owe.
Its important to think past the immediate relief bankruptcy can provide and to consider the full impact of filing. McClary stresses the importance of pursuing an objective opinion on whether or not bankruptcy is the best option for you. He suggests seeking professional help before entering the process.
I would advise people to meet with a nonprofit credit counseling agency or other financial professional and talk to them about your financial situation in greater detail before you decide to talk to a bankruptcy attorney, McClary said. It would really help you to get a better understanding of the problems, the nature of the problem, and what the cause and the solutions might be. Then you can make a more informed choice about whether or not to file.
Once that bankruptcy is discharged, there is no turning back, McClary warns. You cannot undo that decision. And it stays with you for a long time. So its very important that you make as thoughtful and informed decision as possible before going down that road.
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Filing Bankruptcy Can Be Expensive
The bankruptcy court charges a $338 filing fee for Chapter 7 cases. If you earn more than 150% of the federal poverty guideline, you have to pay this filing fee. Itâs possible to file your case and pay the fee in up to 4 payments if you canât pay it all at once. But, if you donât pay it in full, your case will be thrown out by the court.
If you hire a law firm or bankruptcy lawyer to help you, youâll have to pay their attorney fees in addition to the court filing fees. That usually comes out to an average of about $1,500 that has to be paid before your case is filed. And thatâs on top of the filing fee and the cost of taking the required credit counseling courses.
Depending on your financial situation and the goals you want to accomplish with your bankruptcy filing, hiring the right bankruptcy lawyer for your case can be a great investment. But, a lot of Chapter 7 cases are simple and can be successfully completed without a lawyer.
Pros And Cons Of Filing For Bankruptcy
Bankruptcy can take a mental toll on an individual, often leading to a sense of failure. But at the same time, bankruptcy can eliminate stress from bill collectors and allow you to start rebuilding your credit sooner.;The following list of pros and cons is designed to help you make sure youre aware of the potential consequences, good and bad, that come with filing for bankruptcy.
Benefits of filing for bankruptcy
Disadvantages of filing for bankruptcy
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How Chapter 13 Works
A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court: schedules of assets and liabilities; a schedule of current income and expenditures; a schedule of executory contracts and unexpired leases; and a statement of financial affairs. Fed. R. Bankr. P. 1007. The debtor must also 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. 11 U.S.C. §;521. The debtor must provide the chapter 13 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 . Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. §;302.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:
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.
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Stop A Pending Eviction
- If youre being evicted, a bankruptcy filing can buy you more time. It will stop an eviction thats still in the litigation process. But the stay will likely be temporary, so it probably wouldnt be warranted unless youd benefit from wiping out debt. In most states, filing for bankruptcy wont help if your landlord already has an eviction judgment against you.
Start With This Practice
Choose one credit card. Make it the one with the smallest balance. Write down the total due. Ignore what the statement defines as the minimum due payment. Divide the total due by 12. Lets say your smallest debt equals $414. Divided by 12 that means you would need $34.50 per month to pay it off as long as it charges no interest. Now, look at your monthly finances. Get out your bank statement. See those shoes you bought for $40? You will stop spending that $40 for six months. Instead, you will pay it and the $34.50 to the credit card company.
Six months later, do you know what happened? You paid it off six months early! Because you paid on time every month, the credit card company reported wonderful things about you to the credit bureaus. Even though you only made the minimum payments to the other card companies, because you paid everything on time, your credit score jumped up. If you had poor, fair, or good credit, you gained a whopping 25 points. You also paid off that card. Dont you feel great?
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Cons Of Filing Chapter 7 Bankruptcy
1. A bankruptcy stays on your credit report for up to 10 years. While this is a negative aspect of Chapter 7, you can begin rebuilding your credit immediately.2. You can only file bankruptcy once every eight years. If you have additional financial problems down the line, filing a Chapter 13 repayment plan may be an option.3. You are only allowed a certain number of exceptions. If you exceed that amount, you will be required to give the court the excess.4. The legal process can be daunting and some find it embarrassing. You will have to appear in court at least once, and perhaps more if any creditors dispute your discharge.5. Secured debts are dis-chargeable. Also, the property will need to be returned to the creditor and or a settlement price negotiated.;
Stop A Foreclosure Repossession Or Eviction
The automatic stay will stop these actions as long as they’re still pending. Once complete, bankruptcy won’t help.
- Evictions. An eviction that’s still in the litigation process will come to a halt after a bankruptcy filing. But the stay will likely be temporary. Keep in mind that if your landlord already has an eviction judgment against you, bankruptcy won’t help in the majority of states. Learn more about evictions and the automatic stay.
- Foreclosure and repossession. Although the automatic stay will stop a foreclosure or repossession, filing for Chapter 7 won’t help you keep the property. If you can’t bring the account current, you’ll lose the house or car once the stay lifts. By contrast, Chapter 13 has a mechanism that will allow you to catch up on past payments so you can keep the asset. Find out more about bankruptcy’s automatic stay and foreclosure and car repossession and bankruptcy.
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Should I File For Chapter 7 Bankruptcy
- Read this in:
Learn about the pros and cons of filing for bankruptcy and what types of debts you can discharge. #0103EN
What is bankruptcy?
It is a legal process to help people who are unable to pay their outstanding debts.
How are Chapter 7 and Chapter 13 bankruptcies different?
Chapter 7: the court cancels your debt.; Your bills vanish. You are no longer responsible for them.; You get a clean slate and a chance to start over with no debt.
Chapter 13: the court puts you on a 3- to 5-year payment plan to repay your debts.; This can help you try to avoid foreclosure of your home or to pay off other debts, such as traffic tickets or legal financial obligations , that you cannot discharge.
My wages are being garnished.; Can a bankruptcy help?
Probably. The day you file for bankruptcy, the court issues a stay.; This means all collection action, including garnishment, must stop immediately.
Which bills can I discharge in a Chapter 7?
You can discharge most bills, including credit card debt, hospital and medical debt, debt owed to a former landlord, and debt owed due to the repossession of a vehicle.
You cannot discharge:
Traffic tickets and fines . Read My Drivers License was Suspended. Can I Get it Back? to learn more.
When should I think about Chapter 7 bankruptcy?;
You can only file for bankruptcy once every 8 years. Before filing for Chapter 7, at least 1 of these should be true:
If you are a homeowner:
When do I not need bankruptcy?