Is Bankruptcy A Good Idea For You
The decision to file for bankruptcy is a serious one. There are several considerations worth examining closely before getting started:
- The impact on your future ability to access credit, lenders, or low interest rates
- Whether you could lose assets
- The differences in the time and expense associated with each form of bankruptcy
- Whether you are eligible for certain forms of bankruptcy
- Whether you can retain specific valuable assets from repossessions
Considering other impacts can be critical in deciding whether to file for bankruptcy or which form is a better option. Some bankruptcies may:
- Stop foreclosure
- Feel like a significant invasion of your personal privacy with the bankruptcy court and working with your bankruptcy trustee
Any of these concerns may impact the desirability of the relief provided. However, none of these reasons are worse than staying in overwhelming debt or making your financial situation worse. Sometimes, you simply need debt help and cannot get there alone. Bankruptcy will give you a fresh start, and you can work towards the financial situation you want.
The Pros And Cons Of Filing Bankruptcy Dont Start Without Reading This First
Are you considering filing for bankruptcy? If youre heavily in debt and you feel that you cannot manage to pay your creditors back, bankruptcy can be an option for you to have a fresh start. Filing for bankruptcy can help individuals and businesses survive an economic crisis such as Covid-19.
You have to recognize, however, that there are pros and cons of filing for bankruptcy. While bankruptcy can give you debt relief, you also have to know that there are also associated downsides. The advantages and disadvantages of bankruptcy will depend on your current financial situation and the type of bankruptcy youre filing for.
There are two types of bankruptcy that individuals commonly go for: Chapter 7 and Chapter 13. The majority of the bankruptcies filed in the United States are Chapter 7 bankruptcies. However, you would have to meet the income eligibility to be able to file for Chapter 7.
Individuals who do not meet the income requirement, meaning they are making a larger sum of money, are often forced to file for Chapter 13 as an alternative. However, some people prefer Chapter 13 over a Chapter 7 because of certain factors.
Pros And Cons Of Bankruptcy Calculator
Youll notice by going through the list of pros and cons that the list is quite extensive. To make it easier, we built the following bankruptcy pros and cons calculator to allow you to compare each option holistically. The calculator does the following:
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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?
The Things That Happen Immediately After Filing Bankruptcy
As soon as you file your Chapter 7 bankruptcy, you are given a case number and a bankruptcy trustee is assigned to your case. The bankruptcy trustee will oversee your bankruptcy filing, will review your bankruptcy forms, and may ask for additional documents to verify your information. The trustee will also conduct the meeting of creditors.
Protection from your creditors begins immediately after filing for Chapter 7 or Chapter 13 bankruptcy. This is called the automatic stay. Once you file and the automatic stay takes effect, your creditors are not allowed to take collection action against you.
After you file for bankruptcy protection, your creditors can’t call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt. Wage garnishments must also stop immediately after filing for personal bankruptcy.
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What Are Advantages Of Filing Bankruptcy
Everyone is dealing with events that have not occurred in this country since the 1918 Influenza Pandemic. As Floridas cases of COVID19 jump exponentially, businesses that opened are closing again, or that expected to be back on track by now are instead waiting until fall to open. The cruise industry alone now does not expect sailings to begin until September. On top of that, yes, our state unemployment system is a dismal and well-planned failure. People are hurting, and often not sure if filing for bankruptcy is the answer.
Pros And Cons Of Chapter 13 Bankruptcy
Chapter 13 bankruptcy is an option to consider for those in tight financial situations. There are benefits and drawbacks to filing for Chapter 13 bankruptcy, though, and it will be important to consider these points when making the decision to file. In todays blog, we discuss these particular pros and cons of filing for Chapter 13 bankruptcy and how your situation might affect your decision.
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Pros And Cons Of Chapter 7 Bankruptcy
Filing a Chapter 7 bankruptcy case can get rid of debts and protect your property. However, filing for bankruptcy is not a decision that you should make lightly. Once you file a Chapter 7 petition, you may not be able to get out of bankruptcy if you change your mind. It is known as a liquidation bankruptcy, so its important to know how a Chapter 7 bankruptcy works and the pros and cons. Also, while some people do consider Chapter 7 vs Chapter 11 bankruptcy, we will not cover it in this article as Chapter 11 often pertains to business bankruptcy, not a personal bankruptcy, which is far more common.
Now that you see the pros and cons, lets review them in more detail.
Automatic Stay Protection And Cessation From Creditor Collections
Immediately upon filing for bankruptcy, a debtor receives the benefit of the statutorily created automatic stay. The purpose of the automatic stay is to put a stop during the pendency of bankruptcy to collection efforts of creditors and to allow the Bankruptcy Court to put into place a provision to prevent creditors from racing to the courthouse to claim a debtors assets. Instead, the Bankruptcy Code substitutes its own scheme for a hierarchy of creditors, debts, claims procedures and accompanying timelines.
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Advantages Of Filing For Bankruptcy
Here are some of the greatest benefits of filing for bankruptcy:
- Tax liabilities older than three years are eliminated
- Bankruptcy may be better for your credit than missed debt payments, defaults, repossessions, and lawsuits
- You may file for a Chapter 13 bankruptcy if you end up in financial trouble again before you are able to qualify for Chapter 7 again
- Debt collectors cannot use aggressive tactics in an attempt to get you to repay your student loan debt
- Allows you to have a fresh start
- You will no longer be able to receive harassing phone calls from creditors, letters, repossessions, canceled credit cards, declined charge authorizations, and lawsuits related to your debt
- Certain lenders specialize in lending to bad risks customers
- Arkansas state exemptions allow many of your possessions to be exempt from bankruptcy
The Advantages Of Filing For Bankruptcy
Filing for bankruptcy is a fast and affordable way to overcome your debts and to put a stop to the incessant calls, bills, lawsuits, garnishments, threats offoreclosure, and threats ofgarnishment you are likely receiving from debt collectors.
Here are some of the benefits bankruptcy can provide:
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Advantages Of Personal Bankruptcy
The main advantage of bankruptcy is that it offers individuals a chance to start over financially. Most people who file for bankruptcy will be able to get most types of debt completely discharged.
Filing bankruptcy also prevents creditor harassment. An automatic stay is immediately imposed upon filing for bankruptcy to give debtors necessary time to review their current financial situation. This forbids creditors from continuing any collection efforts, and therefore stops or delays foreclosures and evictions, utility turn-offs and wage garnishments. Creditors who attempt to collect debts after an automatic stay is imposed face strict consequences. They may potentially be charged with contempt of court or found liable for damages.
A Chapter 7 bankruptcy offers elimination of all unsecured debts. These are debts for which the debtor has not pledged any property as collateral. Secured debts are debts for which a debtor pledged a specific item of property as collateral, such as a mortgage or car loan. Secured debts can usually not be discharged in bankruptcy. Bankruptcy also usually allows people to keep their property.
Although a bankruptcy does not eliminate secured debts on property, liens can often be discharged or reduced if they are greater than the property value. A Chapter 13 bankruptcy may also give people the ability to catch up on delinquent mortgage payments, allowing individuals to retain their property.
Calculating Your Current Monthly Income
Your current monthly income under the means test is based on your monthly income in the 6 months before your bankruptcy filing. This doesnât include the month your bankruptcy case is filed in. For example, someone filing Chapter 7 bankruptcy in July calculates their current monthly income based on how much they earned from January 1 to June 30.
Step 1: Add up all income from the last 6 months.
Your monthly income is calculated by adding up all countable gross income you received in the 6 month period youâre using for your means test. Gross income is not the same as your take-home income. Itâs before taxes and other deductions are taken out.
Countable income includes income from wages, alimony, child support, rental income, and any other money you receive on a regular basis. Social security income is not added when calculating your current monthly income. If your only source of household income is SSI or SSDI, you pass the Chapter 7 means test without having to do any math.
Step 2: Divide the result by 6.
Step 3: Use your current monthly income to determine your annual income.
Take your current monthly income as calculated and multiply it by 12. This is your annual income according to the means test calculation. Compare that number to the annual income for your household size in your state.
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Bankruptcy Pros And Cons
Being in over your head financially is frightening. If you find yourself in this unhappy position, several kinds of help are available. Bankruptcy is one of the alternatives for financial distress. You need to examine the options available to you for dealing with your financial problems and decide which course of action is best for you.
What Is The Chapter 7 Means Test
The Chapter 7 means test, generally just called the means test, is the analysis that determines whether a person is eligible for relief under Chapter 7 of the Bankruptcy Code based on their monthly income. Itâs called the bankruptcy means test because, at its most basic level, it looks at whether someone has the means to pay their debts.
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Disadvantages Of Declaring Bankruptcy
Bankruptcy should be the option of last resort. Not everyone should declare bankruptcy and there is a downside.
What Happens To Your Credit Score After Filing Bankruptcy
Chapter 7 bankruptcy and Chapter 13 bankruptcy filings show up on your credit report. How long it shows up depends on which type of bankruptcy you file. Chapter 7 bankruptcy stays on your credit report for 10 years after the filing date. A completed Chapter 13 bankruptcy stays on your credit report for 7 years after the filing date, or 10 years if the case was not completed to discharge.
As a result, filing bankruptcy will initially lower your credit score. How much your credit score will drop depends on how high or low it was before bankruptcy. Generally, a decrease between 100 to 200 points can be expected.
The good news is that you can begin rebuilding your credit as soon as your bankruptcy discharge is entered. It’s possible to have a better score within 1â2 years of filing. The credit scores of most bankruptcy filers are already lower because of missed payments. After the court grants a discharge, most unsecured debts are erased. Credit scores improve because there are no more missed payments and discharged accounts show a zero balance.
After Chapter 7 and Chapter 13 bankruptcy is filed, you will get credit card offers in the mail. These offers can be for secured credit cards, sometimes called prepaid cards, which require a cash deposit. Or, offers can be for unsecured credit cards, but will likely have high interest rates or annual fees.
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Bankruptcy Will Affect Your Credit Score
- A filing will remain on your credit report for seven to ten years. But the impact on your ability to get new credit might not be that bad. Getting rid of debt can offset the negative mark of the bankruptcy, and youll likely get new credit offers soon. Plus, the effect of having a bankruptcy lessens over time.
Pros Of Filing Chapter 13 Bankruptcy
1. You can repay your creditors over a longer period of time. If you are behind on your current bills, this will give you time to increase your income, and change your spending habits.2. The amount of debts that you owe can be reduced. In some instances, you will not be required to pay the full amount of the debt that you owe. Once you have fulfilled the terms of your repayment plan, creditors are not entitled to receive the full amount of the money that was owed to them.3. You can stop the effects of defaults and missed payments on your credit report. If you are behind on your financial obligations, filing Chapter 13 bankruptcy is an effective tool to help you structure a plan to pay back your debts in a timely manner.4. Chapter 13 allows you to keep your property as long as you are making payments. This is a good program for people who are behind on their mortgage and other secured debt.
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Some Debts Cant Be Eliminated By Filing Bankruptcy
Certain types of unsecured debt are excluded from discharge by the Bankruptcy Code. These non-dischargeable debts include:
Child support and alimony
Student loan debt, with very rare exceptions
Recent tax debts
Other debt may be by the bankruptcy court if itâs the result of fraud, willful destruction of property, or certain other malicious actions.
Can Your Request For Bankruptcy Be Denied
Petitions for personal bankruptcies are not denied often but under some circumstances they can be. Whether a bankruptcy is approved depends on how much income is made compared to how much debt you are in. A potential reason for denying a debtors bankruptcy is lying about how much certain assets cost or how much income the debtor made in the year. If the debtor attempts to hide financial assets and records, and this is discovered, their bankruptcy may be denied. The motivation behind filing for bankruptcy is to be completely honest about ones financial status, and the necessity of creating a clean slate, financially.
Bankruptcies may also be denied for technical reasons, unrelated to the honesty of the debtor filing. For example, if paperwork work is not timely or is otherwise filed incorrectly, or other conditions for filing a bankruptcy are not met, the bankruptcy petition may be thrown out.
It is also possible for the court to convert the debtors type, or Chapter, or bankruptcy, to one that is deemed more suitable to the debtors circumstances.
For the reasons expressed above, It is best to be completely honest about your financial situation, and handle handle all technical aspects of the proceedings correctly in order to make a bankruptcy petition worth it. If done correctly, a successfully filed bankruptcy can be a great decision to help get your life back on track.
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