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What Does Bankruptcy Petition Mean On Credit Report

What Is Chapter 7 Bankruptcy

Bankruptcy: What does it mean?

Chapter 7 bankruptcy â also known as liquidation or straight bankruptcy â is a process in which you are able to ask a bankruptcy court to wipe out most of your debts so you can start over. A judge will review your case and accept or deny the request.

If approved, the court puts an “automatic temporary stay” in place that stops creditors from trying to collect payments or taking action such as wage garnishment, repossession, or foreclosure, while the bankruptcy case is pending.

Chapter 7 bankruptcy provides immediate relief to people in serious debt; however, there are some drawbacks as well.

Filing for bankruptcy protection negatively affects your credit score for many years, and you could lose certain nonexempt assets that are sold, or “liquidated,” to repay your creditors. Most assets, though, are considered exempt and are not subject to liquidation.

The liquidation process generally involves three steps:

  • Your nonexempt assets are sold
  • Your creditors and lenders receive payment from the sold property
  • You are freed from most remaining unsecured debts and can start over
  • Keep in mind your student loans, tax debt, and other types of secured debt are not “dischargeable,” and you will still need to repay these unless you are able to show extraordinary circumstances. Most consumer debt, though, like medical bills and credit card debt, are dischargeable.

    What Does Bankruptcy Mean

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    In a Nutshell

    Bankruptcy is one of those words that everyoneâs heard but many donât really know what it means. Especially with so many high profile bankruptcies in the news these days, it can be hard to figure how bankruptcy can actually help a regular consumer. Letâs take a look at what bankruptcy means and how the different types of bankruptcy enable you to take back charge of your finances.

    Written by the Upsolve Team. Reviewed by Attorney Andrea Wimmer

    Bankruptcy is one of those words that everyoneâs heard but many donât really know what it means. Especially with so many high profile bankruptcies in the news these days, it can be hard to figure how bankruptcy can actually help a regular consumer. Letâs take a look at what bankruptcy means and how the different types of bankruptcy enable you to take back charge of your finances.

    How To Fill Out Bankruptcy Official Form

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    How Long Does Bankruptcy Stay On Your Credit Report

    Filing for bankruptcy is the single most damaging action you can do to your credit, since it will stay on your credit report for up to 10 years.

    But there is a bright spot: Your credit can start to improve within months of filing, and the change may be especially marked if you were already delinquent on your debts.

    A 2014 report from the Federal Reserve Bank of Philadelphia found that those who filed Chapter 7 bankruptcy;saw their scores improve from an average of 538 to an average of 620;on;a 300-850 scale by the time their case was discharged, which is usually within six months.

    There are also steps you can take to help;recover after bankruptcy.

    Can A Bankruptcy Come Off My Credit Report Early

    How Long Does a Bankruptcy Stay on Your Credit Report?

    A legitimate bankruptcy record cannot be removed from your credit report, but a bankruptcy can come off your report if it is inaccurately entered or otherwise incorrect.

    The FCRA makes provisions for challenging anything on your credit report that is incorrect, has remained on your credit report beyond the maximum time allowed, or cannot be substantiated by the creditor who reported it.

    In the case of bankruptcies especially because they remain on the credit report for so many years its not uncommon for errors to creep in.Some of the most common errors we find include:

    • Debts that were discharged in the bankruptcy are still showing a balance.
    • Individual accounts included in the bankruptcy are still appearing on the report after seven years. In both Chapter 7 and Chapter 13 bankruptcies, the individual affected accounts can only impact your report for seven years starting from original delinquency date, not the filing date of the bankruptcy in which they were discharged.
    • The bankruptcy is still showing up on a report more than 10 years after the filing date.
    • Any sort of material error in how the bankruptcy was reported, from the spelling of names to accurate addresses, phone numbers, dates, etc.

    If any of these or other errors appear on your credit report, you have the right to challenge those errors. The reporting agency must remove them if the reporting agency cannot substantiate the item.

    Recommended Reading: How Does A Bankruptcy Affect Credit Score

    The Four Bankruptcy Petition Types

    • Voluntary Petition for Individuals Filing for Bankruptcy. This form is for individuals who are filing a case on their behalf. Most filers use this form.
    • Voluntary Petition for Non-Individuals Filing for Bankruptcy. Business entities, such as corporations, partnerships. and municipalities, that want to file for bankruptcy will use this form.
    • Involuntary Petition Against an Individual. In some cases, a creditor, rather than the debtor will force a debtor into bankruptcy. This is the involuntary bankruptcy form that a group of creditors would use to file a bankruptcy case against an individual.
    • Involuntary Petition Against a Non-Individual. This form gets used when a group of creditors forces a corporation, partnership, or another entity that is not an individual into bankruptcy.

    Requirement : Debtor Education Course

    Once an individual has completed their Budget Briefing Session and filed their bankruptcy petition, that individual must complete an approved personal financial management instructional course by an approved educational provider, like credit.org, before they can be eligible to receive a bankruptcy discharge.;Credit.org has been approved by the Executive Office for United States Trustees to provide the required Pre-petition;Credit Counseling, Pre-discharge Debtor Education and issue certificates in compliance with the bankruptcy code under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 for residents in all judicial districts except the following: Alabama and North Carolina.

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    Do Credit Card Rewards Count As Assets

    When you file for bankruptcy, you have to list all of your debts and your assets. So does that go for travel miles and rewards points, too? Theres no clear cut answer, Haupt says. Experts disagree on whether these points or miles have real value. On the other hand, some think its better to be safe than sorry. Since you could benefit from using these points, they might be considered an asset.

    The IRS hasnt been aggressive with points in the past, but if you have ones that have economic value, the trustees could take them, Haupt says. Ive seen people with a couple million airline points, and that might get someones attention.

    One thing is clear: If you use those reward points before bankruptcy and use them for gift cards or other goods, these are certainly assets and must be listed on your petition, Haupt says.

    How Long Does A Chapter 7 Bankruptcy Stay On Your Credit Report

    Bankruptcy What Happens in a Chapter 7

    After you file for a Chapter 7 bankruptcy, it remains on your for up to ten years and youre allowed to discharge some or all of your debts. When you discharge your debts, a lender cant collect the debt and youre no longer responsible for repaying it.

    If a discharged debt was reported as delinquent before you filed for bankruptcy, it will fall off of your credit report seven years from the date of delinquency. However, if a debt wasnt reported delinquent before you filed for bankruptcy, it will be removed seven years from the date you filed.

    Read Also: What Is Bankruptcy And Insolvency Act

    Submitting The Bankruptcy Petition

    Under some circumstances the petition should be submitted online, and will be dealt with by the High Court – if the debt amounts to £50,000 and the debtor lives in London, or they have no fixed address.

    Otherwise, it should be handed to the county court located most closely to the debtor, with a copy also being served on them personally. A hearing will then be arranged for not less than 14 days later.

    The bankruptcy hearing

    The court has a number of options when all the evidence has been presented and the bankruptcy hearing concludes:

    • Cease or delay proceedings â sometimes this option is used so the debtor can organise their finances with a view to paying the debt, or to allow more time for evidence to be presented
    • Dismiss the petition if they believe the creditor is being unreasonable in refusing offers to pay in instalments, or itâs found that the debt has already been paid off
    • Make a bankruptcy order

    When a bankruptcy order is made

    The Official Receiver takes control of an individualâs assets when a bankruptcy order is made, and also decides whether or not the debtor has sufficient residual income to make monthly payments to creditors via an Income Payments Agreement .

    Bankruptcy generally lasts for a period of 12 months in England, Wales, and Northern Ireland, after which time the debtor may be discharged if theyâve cooperated fully in the process. Scotland operates a different system regarding individual bankruptcy.

    Bankruptcy Definition: What Exactly Does It Mean

    When an individual or company files for bankruptcy, he or it is making a legal declaration of an inability to repay his or its debt to creditors. Once bankruptcy is declared, a debtor is absolved of most financial obligations; however, the bankruptcy will have an adverse impact on the individual’s or company’s credit history and ability to obtain credit in the future.

    Types of Bankruptcy

    A debtor can file for different types of bankruptcy depending on the circumstances of the debt. The following are the most commonly filed bankruptcies.

    Chapter 7: Liquidation

    Chapter 7 ranks number 1 for bankruptcy filings in the United States. Debtors who have qualified under the means test and have attended a required credit counseling session are eligible to file for Chapter 7. An individual that files Chapter 7 will have all of his assets sold, with the exception of certain exempt property, such as necessary clothing and household appliances. The proceeds from the liquidation will go to creditors to pay off the debt. Chapter 7 does not absolve a debtor of certain obligations, including child and spousal support or student loans. All other debts can be discharged; however, the bankruptcy is reflected on a debtors credit report for 10 years. Chapter 7 bankruptcy is best suited to debtors who dont own any real estate property.

    Chapter 11: Reorganization

    Chapter 13: Individual Debt Adjustment

    Read Also: What Does Chapter 13 Bankruptcy Cover

    Basics And Eligibility For Chapter 7

    Chapter 7 bankruptcy focuses on liquidating your nonexempt assets, if you have any, to repay creditors before your remaining debt is discharged. The process can get rid of many types of unsecured debt such as credit card debt, medical bills, and utility bills.

    Chapter 7 is the most common of the bankruptcy options available to individuals. Another bankruptcy option available to individuals is Chapter 13, which focuses on debt repayment. Chapter 12 bankruptcy is a relatively new option available to âfamily farmers” and âfamily fisherman.”

    To qualify for Chapter 7 bankruptcy you must meet specific eligibility requirements, including a “means test.” The purpose of the test is to prevent high-income earners from qualifying for Chapter 7.

    You pass the means test automatically if your average monthly income for the six months before filing for bankruptcy is less than or equal to your state’s median income.

    If your income is higher than your state’s median income, you may still pass the means test if it’s determined that you don’t have enough disposable income to pay your creditors after taking into account your income, expenses, and family size.

    What About Hotel And Airline Rewards

    What is Bankruptcy?

    Your best shot for keeping your rewards is if your credit card is with a hotel or airline. Since the credit card issuer isnt the only one involved in the rewards program, you may still be able to hang onto those points if you transfer them to the hotel or airline loyalty program. If this is the case, try to transfer these points before you file for bankruptcy, and be sure to check with the relevant airline or hotel if you have questions.

    If youre worried about losing access to credit, just keep in mind that its not forever. Youll get swamped with credit card offers after you file for bankruptcy, says bankruptcy attorney Robert Haupt. Bankruptcy is a clean slate it improves your ability to pay your bills, and thats attractive to credit card companies. With careful spending and time, youll qualify for rewards credit cards again soon.

    Recommended Reading: How Does Bankruptcy Affect Buying A House

    When Is A Good Time To File For Chapter 13

    Today, the most common reason that people file for any kind of bankruptcy is medical expenses. This sad fact has not gone unnoticed by politicians and activists who claim that our health care system is broken. Once a creditor obtains a judgment against you in court, they can make your life a living hell. Not only can they garnish your wages, they can also place a levy on your bank account which allows them to freeze your funds. At that point, they can petition the court to transfer those funds over to them.

    Additionally, they can place liens on your real estate. If you own properties other than your legal residence, they can force the sale of the properties to repay the debt that theyre owed. In other words, right about the same time they threaten to sue you and you know that theyre going to win that judgment, its a good time to start considering filing for bankruptcy.

    Once in bankruptcy, your creditors hands are tied insofar as using aggressive tactics are concerned. Essentially, you have regained control of the situation and you can work out a repayment plan that works within your finances and prevents your creditors from seizing your money or property.

    Do You Get Out Of All Debts If You Declare Bankruptcy

    In both cases, the bankruptcy court can discharge certain debts. Once a debt has been discharged, the creditor can no longer take action against the debtor, such as attempting to collect the debt or seize any collateral. Not all debts can be discharged, however, and some are very difficult to get discharged.

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    How To Reestablish Your Credit

    After declaring bankruptcy, you’ll want to look at ways you can earn a score in a range that will qualify you for better financing options and that begins with rebuilding your credit.

    You may not be able to immediately qualify for the best credit cards, but there are others that apply to people with less-than-stellar credit.

    Secured credit cards require a deposit that acts as your credit limit. If you make your credit card payments on time and in full on this new secured card,;you then have a greater chance at qualifying for an unsecured credit card in the near future.

    The Capital One® Secured has no annual fee and minimum security deposits of $49, $99 or $200, based on your creditworthiness. Those who qualify for the low $49 or $99 deposits will receive a $200 credit limit. Cardholders can obtain a higher credit limit if they make their first five monthly payments on time.

    The Citi® Secured Mastercard® is another option with no annual fee. There is a $200 security deposit required, which would mirror your credit limit. Cardholders can also take advantage of Citi’s special entertainment access, which provides early access to presales and premium seating for concerts and games.

    Once you add this new credit car, make sure you pay your monthly bills on time and in full to quickly work your way toward better credit.

    Editorial Note:

    What Is A Statutory Demand


    A statutory demand is an important part of the process when a creditor wants to petition for bankruptcy. Itâs a formal demand for payment of a debt that is typically served on a debtor in person.

    The debtor has 21 days from receiving the demand to pay the debt in full, or come to an arrangement to pay in instalments. If this doesnât happen the creditor has four months in which to make a petition for bankruptcy.

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