Understand The Advantages Of Filing For Bankruptcy
You may have wondered, what is the downside of filing for bankruptcy? There are some advantages to filing for bankruptcy, too, however. When you need a fresh start to get out from under a heavy debt load, filing for bankruptcy could be just the answer you need. In addition to a new start, federal bankruptcy offers consumers, business owners, and corporations many benefits, including the following:
- Complete relief of all dischargeable debts with no further obligation to repay them.
- The ability to hold on to some personal property and assets like your home and vehicle.
- Relief from the constant pressure and invasive contact from debt collectors.
- Over time, your credit score can improve when discharged debts are removed from your .
Your wages cannot be garnished by your creditors and your car cannot be repossessed while you are going through the bankruptcy process. Your lawyer can explain other advantages to filing bankruptcy that apply to your specific situation. Bankruptcy can give you the opportunity to create a new financial picture for yourself, your family, or your business.
What Happens To Your Credit
Bankruptcy stays on your credit report for seven to ten years. While filing for bankruptcy significantly damages your score, it doesnt mean that it consistently holds you back the entire period the impact to your credit score tends to diminish over time, shares Gonzalez. Stay focused on rebuilding it, be responsible, and keep monitoring your credit to minimize the damage.
So just how much will bankruptcy impact your score? While the drop will fluctuate on a case-by-case basis, Debt.org maintains that someone with an average 680 score would lose between 130 and 150 points in bankruptcy, while an individual who started out with near-perfect creditlike an above-average 780 scorewould lose between 200 and 240 points. Here are 10 things you probably think will hurt your credit score but actually wont.
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Definition And Example Of A Bankruptcy Discharge
A discharged debt literally goes away. It’s no longer collectible. The creditor must write it off. Debts that are likely to be discharged in a bankruptcy proceeding include credit card debts, medical bills, some lawsuit judgments, personal loans, obligations under a lease or other contract, and other unsecured debts.
That might seem too good to be true, and there are indeed some drawbacks. Filing for bankruptcy and receiving a discharge will seriously impact your credit. You must establish to the court’s satisfaction that the discharge is financially necessary. You can’t simply ask the bankruptcy court to discharge your debts because you don’t want to pay them.
You must complete all of the requirements for your bankruptcy case to receive a discharge. The court can deny you a discharge if you dont take a required financial management course.
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What Does Filing Chapter 7 Bankruptcy Do
Chapter 7 bankruptcy is the most common type of bankruptcy people file. It is the âliquidationâ form of bankruptcy that provides for the sale of a debtorâs property to pay creditors. However, in more than 90 percent of cases, the filer is able to keep all of their belongings. Property and personal belongings valued up to a certain amount are generally protected through bankruptcy by exemptions. Exemption schemes that vary by state, although some states allow their residents to use the federal bankruptcy exemptions. Exempt property includes a certain amount of equity in real estate , cars, and other personal property, as well as retirement accounts and certain types of income and benefits, like Social Security.
Not only can you keep most or all of your belongings despite filing for bankruptcy, but Chapter 7 can also discharge your nonpriority unsecured debts. After receiving a successful Chapter 7 discharge, you will no longer owe credit card debt, medical bills, or other eligible debts. Creditors of discharged debts can never legally attempt to collect those debts from you again. This can give you breathing room to get your financial affairs back in order so that you can pay your other, nondischargeable debts and move on with your life.
How Discharge Affects Your Belongings
Discharge from bankruptcy doesn’t mean you’ll get back any belongings, even if they haven’t been sold yet. It might take some time for the official receiver to deal with them.
If you come by any new assets after you’ve been discharged, these will usually remain yours and can’t be claimed by the trustee. An important exception to this rule is any payments you receive by claiming for payment protection insurance which was mis-sold before you become bankrupt.
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What Does It Mean When A Store Files For Bankruptcy Protection
Preppy mass-market mall brand J.Crew filed for Chapter 11 bankruptcy protection Monday, making it the first major retailer to seek bankruptcy protection as a result of the pandemic.
Along with hundreds of other brick-and-mortar businesses, J.Crew closed numerous stores in March 500, in its case and furloughed 11,000 employees as state governors issued orders to close nonessential businesses to curb coronavirus infection rates. It expects to lose $900 million in sales because of the store closings, according to a filing in U.S. Bankruptcy Court in Richmond, Virginia, by Michael Nicholson, the companys chief operating officer.
A Chapter 11 filing is different from a filing under Chapter 7 of the U.S. Bankruptcy Code. Under Chapter 7, a company loses control of the business, some or all of which can be sold off by a third-party trustee to meet the companys debts.
A Chapter 11 filing doesnt mean your favorite store is about to disappear. Instead, Chapter 11 offers a company a way to reshape the business by reorganizing debt and eliminating costly real estate, said Kevin Carey, a former bankruptcy judge and partner with the Hogan Lovells law firm.
In J.Crews case, it is using the bankruptcy process to give any debt holder a piece of its reorganized equity.
Some companies who sought bankruptcy protection before the pandemic were granted court approval to take a break from paying their rent.
How A Bankruptcy Discharge Affects Credit
Once you file for bankruptcy, a record of it will appear in your credit files and will remain there for a period of time. Chapter 7 bankruptcies remain on your credit reports for 10 years from the initial date of filing, and Chapter 13 bankruptcies stay on your reports for seven years from the date of filing.
As long as a record of the bankruptcy is listed in your reports, it will have a negative impact on your credit scores. Once you receive a discharge for the bankruptcy, the record will change in your credit file and a record of the discharge will appear. Each of the accounts discharged as part of the bankruptcy should also be updated to show a zero balance.
If you’ve received a bankruptcy discharge and do not see a record of it in your credit reports, you can request an update to your credit reports with the three main credit bureaus . To process this update with Experian, you’ll be required to provide a “schedule” document from your bankruptcy records to show evidence of the debts included in your discharge.
If you’re not sure what appears in your credit file, consider getting a free copy of your credit report and score from Experian to see what’s recorded in your credit history. If your report contains any errors, make sure to file a dispute with one or more of the three main credit bureaus to get the mistake removed from your file as soon as possible.
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Keep Your Discharge Order After Bankruptcy
It’s not a bad idea to keep your discharge paperwork somewhere you can easily find it because you might need it in the future. For instance, a lender might ask for a copy if you apply for credit or a home mortgage. Also, you’ll want to be able to provide the following to any creditor that calls to collect a discharged balance:
- bankruptcy case number
- filing date, and
- discharge date.
The information allows the creditor to verify the bankruptcy and that the discharged debt is no longer collectible. You’ll find the filing date and case number at the top of almost any document you receive from the court. The discharge date will appear on the left-hand side of the discharge order immediately next to the issuing judge’s name .
Why does the filing date matter? Qualifying debts that you incur before filing for bankruptcy are eligible for discharge. The discharge order won’t include any obligations that arise after filing for bankruptcy.
Why does the discharge date matter? Just because you file for bankruptcy does not mean you’ll receive a discharge, as discussed above. Providing the discharge date will help you resolve a collection issue more expediently.
What Are Some Negative Consequences Of A Bankruptcy Discharge
When you clean your financial slate with a bankruptcy, youll have to deal with some credit-related consequences.
A bankruptcy will remain on your credit reports for up to either seven or 10 years from the date you file, depending on the type of bankruptcy. Since your credit scores are calculated based on the information in your credit reports, a bankruptcy will affect your credit scores as well. This can make it more difficult to buy a home or a car with a loan, or even get a new apartment rental. For more information, check out our article on what happens to your credit when you file for bankruptcy.
A discharged Chapter 7 bankruptcy and a discharged Chapter 13 bankruptcy have the same impact on your credit scores, though its possible a lender might look more favorably on one or the other.
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First And Second Bankruptcy
This timeline extends significantly for subsequent bankruptcies.
24 months For bankruptcies not requiring income payments into the bankruptcy estate and where the bankrupt individual attends their two mandatory counselling sessions and no party opposes.
36 months For bankruptcies requiring income payments into the bankruptcy estate and where each of the other conditions are satisfied.
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Do You Need A Bankruptcy Lawyer
You may want to consider having a bankruptcy lawyer attend at your discharge hearing. The role of the Licensed Insolvency Trustee is to act as a referee, an unbiased party who ensures all parties follow the rules and behave fairly in the bankruptcy process. Your trustee can advise if the issues raised will be significant enough for you to consider independent representation.
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Getting Public Records Changed
After discharge from bankruptcy, your details will still be included in several public records. Some of these will be removed automatically after a certain time, while you’ll need to take action to get others changed, as follows:
- your details will automatically be removed from the Insolvency Register 3 months after your discharge
- if you want your credit record to show you’ve been discharged, you should send confirmation to each of the credit reference agencies and ask them to update your file – remember the bankruptcy will show on your file for 6 years after the bankruptcy order
After Discharge From Bankruptcy When Does Your Credit Rating Improve
A record of your bankrupty remains on your credit file for 6 years from the start date. This is regardless of the date of discharge. As such it is common for your credit rating to remain poor for a considerable time after you are discharged.
Having said that once you are discharged there are various things that you can do to improve your credit score. These include remedying credit file errors and starting to use a credit repair credit card.
It may be possible for you to get a mortgage after you are discharged before the record comes off your credit file. However you will need to use a specialist broker.
Liens Or In Rem Liability
Even though personal liability is discharged, most liens, the liability of an item of property for a debt secured by that property, pass unchanged through bankruptcy unless a court order modifies or voids them. See what debts are secured by liens?
So, after a bankruptcy discharge, a voluntary lien, like a mortgage, may remain a charge on an asset the debtor owned when the case was commenced.
Involuntary liens, like judgment liens or tax liens, remain a charge on assets that the debtor owned when the bankruptcy case was filed, but dont attach to assets that the debtor acquires after the bankruptcy discharge.
The Final Steps Of Your Journey Towards Lasting Debt Relief
Getting all of your bankruptcy forms prepared and filed with the bankruptcy court is usually the most time-intensive process of a Chapter 7 bankruptcy. But that doesnât mean that your job is done. There are a few things everyone filing Chapter 7 bankruptcy has to do to successfully complete their bankruptcy case and receive a discharge. Letâs take a look at what you can expect will happen in your Chapter 7 bankruptcy.
Pay Filing Fee in Installment Payments
If you cant pay the entire Chapter 7 bankruptcy filing fee and you dont qualify for a fee waiver, then you can apply to pay the filing fee in installments. You can ask to make four installment payments. The entire fee is due within 120 days after filing.
If the bankruptcy court approves your application, it will grant an Order Approving Payment of Filing Fee in Installments. Your installment payment due dates will be in that order. You must pay all installments on time or your case is at risk of being dismissed.
Take Bankruptcy Course 2
You will complete a credit counseling course before filing bankruptcy. Theres a second course you must take after filing bankruptcy. It covers personal financial management and can help you take advantage of your fresh start after erasing your debts through bankruptcy.
You have to take this course after your case is filed but make sure itâs be completed within 60 days from the date of the meeting of creditors. A certificate of completion must be filed with the court.
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How Much Debt Do You Need To File Chapter 7 Bankruptcy
This is assessed by seeing if you meet the means test requirements. You would be eligible to file Chapter 7 bankruptcy if your current monthly earnings is less than the state median limit. If your CMI is higher than the state median income, you cannot qualify. The means test is based on a person having greater discretionary income than they save in their income tax return and the primary spending expense.
How Does Filing Bankruptcy Affect Your Credit
Filing bankruptcy will affect your credit score for as long as it appears on your , though the negative impact does diminish over time. Chapter 13 bankruptcy stays there for seven years, while Chapter 7 is there for 10 years, and you should see your credit score recover throughout the years given you dont have any financial hiccups along the way.
Chapter 13 also has less of a blow because if you complete your repayment plan you will at least have established a track record of paying your bills.
If youre filing for bankruptcy, chances are your credit score wasnt that good to begin with. If it was good, it will plummet 100-200 points, regardless of which chapter you use.
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Can Your Discharge Be Suspended
Bankruptcy usually lasts 1 year. Most people are discharged 12 months after the start date. However it is possible for the Official Receiver to apply to the Court for discharge to be suspended. If this happens you remain bankrupt past the normal 12 months.
The OR will only ever request the suspension of discharge in rare occasions. It will only happen if they believe you are not cooperating with their investigation of your financial affairs.
You may be deemed to be uncooperative if you withold information that the OR asks for or try to hide assets. In addition a discharge date may be suspended if you totally ignor their attemptes to contact you.
A suspension of your discharge will be lifted once you start cooperating with the OR and they are able to complete their investigation of your affairs.
What Does Getting A Bankruptcy Discharge Mean
Unless there is litigation in response to the discharge, you will immediately receive the bankruptcy discharge.
Under the Federal Rules of Bankruptcy Procedure, you will be sent a copy of the order. All of your creditors and your attorney will receive one too. The paper is a simple notification to inform creditors that the debts owed to them have been discharged and that they should not attempt to collect the discharged debts from you any longer.
If they ignore the notification, they may be subject to punishment for contempt. However, It is important to note that not all debts are discharged in bankruptcy.
Under Chapter 7 Bankruptcy, there are debts that debtors still need to repay even within bankruptcy. These non-dischargeable debts include child support, alimony, student loans, secured debts on property and other tax debts.
Debts that arise out of fraud and malice are not discharged in bankruptcy. Debts that are not identified by the debtor while filing for the bankruptcy petition are also considered non-dischargeable.
A Chapter 13 case also has its own category of debts that can not be discharged. Like Chapter 7, include debts from child support, alimony, student loans, secured debts on property and other tax debts.
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