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.
What Is A Licensed Insolvency Trustee
A Licensed Insolvency Trustee is a federal government licensed debt help professional who is also an officer of the court. Despite claims that an LIT only works for your creditor, which are not true, an LIT actually acts more like a mediator between debtors and creditors, using the federal Bankruptcy and Insolvency Act to ensure fairness for all parties. If you are struggling with debt, an LIT will be able to explain every option to help find the best solution for you, and is the only licensed debt professional who can file a bankruptcy or a consumer proposal on your behalf.
If You Have Good Credit It Will Likely Take A Temporary Hit
Those that are able to maintain their monthly payments and keep their credit score high before filing their bankruptcy petition will see their score drop initially. But, a bankruptcy filing often does more good than harm to the filerâs credit score. Plus, once their bankruptcy discharge is granted, they can begin increasing that pesky credit score immediately.
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Farming Fishing And Aquaculture Exemptions
- If your primary occupation is farming, personal property used by you to earn income are exempt up to $10,000
- If your primary occupation is fishing, personal property used by you to earn income are exempt up to $10,000
- If your primary occupation is aquaculture, personal property used by you to earn income are exempt up to $10,000
Receiving Another Bankruptcy Discharge
You’ll qualify for another discharge if you meet the waiting period rules. Here’s how it works.
Chapter 7 to Chapter 7. If you received a Chapter 7 discharge previously, eight years must elapse between the old and new filing dates.
Chapter 13 to Chapter 13. Two years must elapse between the two filing dates to receive a discharge in Chapter 13. Because a Chapter 13 repayment plan usually takes three to five years to complete, you’ll likely be eligible for a second discharge after finishing the first case.
Chapter 7 to Chapter 13. Four years must elapse between the Chapter 7 and Chapter 13 filing dates. Chapter 13 has its benefits even if you don’t receive a discharge, however. For instance, you can pay off priority debts, such as newly-incurred taxes or domestic support arrearages. Or, you can catch up on missed mortgage or vehicle loan payments and keep a house or car. Filing for Chapter 13 immediately after receiving a Chapter 7 discharge is commonly referred to as a Chapter 20 bankruptcy.
Chapter 13 to Chapter 7. If you received a Chapter 13 discharge and you’d like to receive a Chapter 7 discharge, you’ll have to wait six years between filing dates. But there is an exception to this rule. The six-year rule won’t apply if, in the previous Chapter 13, you paid back:
- all of your unsecured debts, or
- at least 70% of your unsecured debts in a plan proposed in good faith and implemented through your best efforts.
Is Chapter 7 Bankruptcy Right For You
Make sure you know the difference between Chapter 7 bankruptcy vs Chapter 13 bankruptcy. Chapter 7 makes sense when:
You dont have many assets.
Your problem debts total more than 50% of your annual income.
Your problem debts can be discharged, or forgiven, by Chapter 7. These include debts such as medical bills, credit card debt and personal or payday loans.
It would take five years or more to pay off your debt, even if you took extreme measures.
Some debts typically cant be erased in bankruptcy, including recent taxes, child support and student loans. Bankruptcy still may be an option for you, though, if erasing other kinds of debt would free up enough money to pay the debts that cant be erased.
The other common form of consumer bankruptcy, Chapter 13, may be better if you have more assets or secured debts, and can repay some or all of what you owe.
Other debt relief options are available, too, such as a debt management plan through a agency. Take advantage of the free initial advice that credit counselors and many bankruptcy attorneys offer before deciding on a path.
Getting A Lawyer To Help You With Your Bankruptcy
Bankruptcy is a specialized area of law that is very complex. And the issues are not always apparent or simple. The bankruptcy laws changed in October 2005 to discourage many people from filing for bankruptcy. So the law became more complicated. And there are more situations where a mistake can result in your case getting dismissed. If your case is dismissed, the bankruptcy court often imposes a penalty of 180 days before you can refile, and in this time period a lot can happen. This is why it is so important to have a lawyer advise you and help you with your bankruptcy.
Find a lawyer who can help you work through the issues, alternatives you may have, and consequences of your choices.
- Pick a lawyer with whom you are comfortable, one who will allow you to ask questions and give you responses that you can understand.
- Pick a lawyer who either specializes in bankruptcy or does a large part of his or her practice in the field.
- Ask questions until you understand what your choices are.
- Don’t be afraid to interview a lawyer and leave without hiring him or her.
If you decide to represent yourself in bankruptcy court, read a guide for Filing for Bankruptcy Without an Attorney.
To find a good bankruptcy lawyer:
- Check state bar groups and specialization/certification programs for bankruptcy lawyers in your community.
- Ask other lawyers or tax preparers you know for recommendations.
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Frequently Asked Bankruptcy Questions
Filing for bankruptcy is a difficult decision, and we understand that youd want to know as much information as possible before choosing to file. A Licensed Insolvency Trustee will be able to explain the bankruptcy process and answer any questions you might have. You can always speak with an LIT in a free initial consultation. Just click the button below. However, we also cover some of the most frequently asked questions about bankruptcy in this article.
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.
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Consider The Pros Of Double Filing
Getting a Chapter 7 discharge and immediately filing for Chapter 13 will give you more time to pay back debts that cannot be discharged, such as child support or spousal support.
Similarly, if you just need more time to pay off your debt, you can consider filing for a second Chapter 13 early. This will not discharge any debt but adds another five years to your bankruptcy payment plan. This will buy you more time instead of having automatic wage garnishment applied to your paychecks.
If you did not receive a discharge during the first filing, you might get one in the second bankruptcy.
If you are considering double filing, you need to work with a bankruptcy lawyer to get it right. There are many nuances that could lead a court to declare that you have filed again in bad faith.
A Quick History Of Bankruptcy
The term bankruptcy probably came from the Italian phrase banca rottawhich literally means broken benchbecause in medieval days, if a merchant couldnt pay their creditors, they could come break the merchants market stall .1
What about bankruptcy in America, specifically? Well, several different bankruptcy acts popped up during times of economic crisis before the Bankruptcy Act of 1898. This one said bankruptcy didnt require the creditors approval and stuck around until the Bankruptcy Reform Act of 1978which set the laws we follow today.
Now when you file for bankruptcy, no ones coming to smash your bench , but its still a painful experience.
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Can I Get A Credit Card After I File For Bankruptcy
When you file for bankruptcy, you must hand over your credit cards to your LIT. An LIT will also explain credit rebuilding strategies and programs to you. You can apply for a credit card after youre discharged from bankruptcy, and will likely need to start with a secured credit card, where you would pay a deposit to guarantee your credit limit.
Special Homestead Exemption Rules
The homestead exemption protects your ownership interest in your home. You’ll need to read your state’s homestead statute to determine the specifics, such as the amount of equity and acreage covered, whether the exemption protects a manufactured home, and if you need to file a homestead exemption with the county clerk. But in all states, the property must be your residence. Also, you’ll need to comply with a federal timing lawhere’s the rule:
You must live in the home for more than 40 months before filing for bankruptcy. Otherwise, your homestead exemption is capped at $170,350 if you file on or after April 1, 2019 . This cap won’t apply if you bought your home with home sales proceeds from that state.
Find out more in Chapter 7 Homestead Exemption in Bankruptcy.
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Talk To A Financial Coach
You dont have to walk this alone. Read that again: You dont have to walk this alone. Get with a financial coach and talk about your situation. They arent here to judgetheyre here to help.
A financial coach can help you figure out a personalized plan of action for your specific situation. And yes, talking about money can be terrifying, but if you declare bankruptcy, your financial privacy will be out the window immediately. Opening up to a trustworthy financial coach now can help you avoid having to open up to a whole courtroom of people in bankruptcy.
Dealing With Your Car Loan
If you own a car that you still owe on, youâll have to let the bank and the court know what you want to do with it one one of your bankruptcy forms.
If you want to surrender the car to the lender and discharge the debt, you donât have to do anything other than stop making your payments. The bank will either file request with the bankruptcy court to ask permission to retake the car, or wait until your discharge is granted before picking it up.
If you want to keep the car, you can either reaffirm the loan or redeem the car. If youâre reaffirming your loan, the bank will send you a reaffirmation agreement after your case is filed. You have to complete and sign the agreement and return it to the bank within 45 days from your 341 meeting. The bank files the signed agreement with the court for approval.
To redeem the vehicle you have to file a motion with the court and, once granted, buy the car from the bank for its current value. This gets you out of having to pay the amount left on the loan, but payment has to be made in one lump sum.
Filing for bankruptcy takes some preparation. Hiring a good bankruptcy attorney is one way to file. But if you can’t afford the attorney fees to hire one and you need a fresh start, Upsolve may be able to help. If you’re eligible, our free web app will walk you through the process and help you prepare your forms for filing with the court.
Check out the video below â¬ï¸ to see how it works!
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Schedule A Free Debt Assessment
Still have questions? See our Personal Bankruptcy FAQ page or contact us for a free consultation. We are happy to answer any questions you have about filing bankruptcy over the phone or by email.
Hoyes, Michalos has helped over 60,000 individuals file a bankruptcy or consumer proposal since 1999. Our licensed bankruptcy trustees always take the time to answer any questions you have about how to file for bankruptcy and how bankruptcy will affect you and your family. Contact us so we can help you make a plan to be debt free.
How Do You File Chapter 7 Bankruptcy
You can probably complete the process within six months. You’ll have to follow several steps.
You must complete pre-file bankruptcy counseling from a qualified nonprofit credit counseling agency within 180 days before filing.
Find an attorney:Before diving into the various forms required to file Chapter 7, find a qualified bankruptcy attorney to help. Its hard to find money for a lawyer when you need debt relief, but this is not a DIY situation. Missing or improperly completed paperwork can lead to your case being thrown out or not having some debts dismissed.
File paperwork: Your attorney will help with filing your petition and other paperwork. But its on you to gather all relevant documentation of your assets, income and debts. An automatic stay goes into effect at this point, meaning that most creditors cannot sue you, garnish your wages or contact you for payment.
Trustee takes over: Once your petition is filed, a court-appointed bankruptcy trustee will begin managing the process.
Meeting of creditors: The trustee will arrange a meeting between you, your lawyer and your creditors. Youll have to answer questions from the trustee and creditors about your bankruptcy forms and finances.
Your eligibility is determined: After reviewing your paperwork, the trustee will confirm whether youre eligible for Chapter 7.
Education course: Before your case is discharged, youll have to take a financial education course from a qualified nonprofit credit counseling agency.
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What Is The Downside Of Filing For Bankruptcy
Home » 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.
Ontario Bankruptcy And Insolvency Statistics
- 38,856 consumers in Ontario were insolvent in 2018
- 38% of those consumers went on to declare bankruptcy
- Average assets at the time of filing: $30,774.14
- Average liabilities at the time of filing: $98,577.12
- With an average household income of $74,287 in Ontario, the average filer effectively owed $1.33 for every dollar they earned
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Do The Courts Ever Deny A Chapter 7 Bankruptcy
It can happen. Most individual debtors receive a discharge under Chapter 7.
However, if the courts find that an individual concealed money or other assets, fraudulently transferred assets that should have been used to pay off debts, or otherwise broke the law, the entire bankruptcy case may be denied.
What Happens After You File For Bankruptcy
Your bankruptcy is complete when you receive your Notice of Discharge from your Trustee. At that point, you will be free of the unsecured debts that were included in your bankruptcy. You can begin to rebuild your credit.
A notation about your bankruptcy will remain on your credit bureau report after the date of discharge. This is usually removed automatically after six years. Even while the bankruptcy is still noted on your report, you may be able to get credit from certain lenders. You can help this along by taking active steps to rebuild your credit. Your Trustee can give you advice on getting a new start.
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