What Filing For Bankruptcy Really Means

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.

Are There Any Options Other Than Filing For Bankruptcy

Bankruptcy should be your last resort and last resort only there are other less drastic options to consider. Debt settlement is one of them. This is a negotiation between debtor and creditor where they agree on a reduced balance to be paid off, after which the account is closed, Gonzalez says.

Another option is a debt management plan. This is an agreement between the debtor and the creditor to modify the terms of the outstanding debt, such as fees or interest reduction for a certain period of time. This should allow you to pay back the amount owed, and help you regain control of their finances, Gonzalez says.

You can also try consolidating your debts or even asking a family member for help. While improving your finances may seem hopeless, it can be done. Get inspired by the story of this couple who paid off $78,000 in debt in two years.

Will My Canadian Student Loans Go Away If I Declare Bankruptcy

If you were a student, either part-time or full-time, less than seven years from the date that you declared bankruptcy, you will have to repay your student loan debt, including the interest charges. Check with Canada Student Loans to learn what they consider to be the last official date you were in school.

If your official last day is under seven years ago, you may still be able to get your student loan debts discharged. You can retain a lawyer and make an application to the court.

You must meet the following requirements:

• You have been out of school for a minimum of five years
• You acted in good faith with regard to the liabilities under the loan
• You have and will continue to experience financial difficulty to such an extent that you will be unable to pay the liabilities under the loan

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What Actually Happens To Your Credit

A bankruptcy can stay on your credit report for up to 10 years. However, most lenders only care about what youve done over the past year or two. Therefore, it should be easier to get a credit card, mortgage or auto loan relatively quickly after your case is discharged. Its important to note that your score may go up because eliminating existing debts will reduce your debt-to-income ratio .

If you want to learn more about filing for bankruptcy, it may be a good idea to speak with an attorney. Doing so may make it easier to determine if taking such a step is in your best interest.

How Does Chapter 11 Work

The U.S. Trustee, the bankruptcy arm of the Justice Department, will appoint one or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt. The plan must be accepted by the creditors, bondholders, and stockholders, and confirmed by the court. However, even if creditors or stockholders vote to reject the plan, the court can disregard the vote and still confirm the plan if it finds that the plan treats creditors and stockholders fairly. Once the plan is confirmed, another more detailed report must be filed with the SEC on Form 8-K. This report must contain a summary of the plan, but sometimes a copy of the complete plan is attached.

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Why Would A Company Choose Chapter 11

Most publicly-held companies will file under Chapter 11 rather than Chapter 7 because they can still run their business and control the bankruptcy process. Chapter 11 provides a process for rehabilitating the company’s faltering business. Sometimes the company successfully works out a plan to return to profitability sometimes, in the end, it liquidates. Under a Chapter 11 reorganization, a company usually keeps doing business and its stock and bonds may continue to trade in our securities markets. Since they still trade, the company must continue to file SEC reports with information about significant developments. For example, when a company declares bankruptcy, or has other significant corporate changes, they must report it within 15 days on the SEC’s Form 8-K.

Alternatives To Chapter 7

Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.

In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707.

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

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Myth #: Some Creditors Are Immune From The Bankruptcy And Can Still Sue You

This is absolutely false. In fact, one of the primary reasons to file bankruptcy is to eliminate ALL collection activities. When you file the bankruptcy petition, whether through Chapter 7 or Chapter 13, you and your property receive automatic protection from the court against your creditors , which also includes the creditors attorneys, collection agencies, representatives, and/or agents.

Federal law specifically prohibits your creditors from contacting you for any reason, including through written correspondence, monthly bills, or phone calls. Creditors must cease all collection efforts against you, meaning they cannot file a new suit, continue a prior lawsuit, or collect on a prior legal judgment.

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.

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What Automatically Happens When A Bankruptcy Petition Is Filed

The moment you file your bankruptcy case, an automatic stay goes into effect. The stay prohibits almost all creditors from initiating or continuing any collection activities against you. A creditor cannot call you, send you collection letters, file a lawsuit, or otherwise attempt to collect its debt from you.

When To Stop Digging A Hole You Can’t Escape

Most of us feel we have a moral obligation to pay what we owe if we can. But typically that ship has sailed by the time people realize they need to consider bankruptcy. They can continue trying to chip away at debts they may never be able to repay, prolonging the damage to their credit scores and diverting money they could use to support themselves in retirement. Or they can recognize an impossible situation, deal with it and move on.

If you can pay your bills, obviously you should. If youre struggling, check out your options for debt relief. But bankruptcy may be the best option if your consumer debt the kinds listed above that can be erased equals more than half your income, or if it would take you five or more years to pay off that debt even with extreme austerity measures.

Heres what you need to know:

You need a bankruptcy attorney: Its easy to make a mistake in the complicated paperwork, and an error could cause your case to be dismissed. If that happens, you end up with no relief but still have credit scores tanked by the bankruptcy filing.

Dont wait too long: Theres a misconception that people file bankruptcy at the drop of a hat or when they still have other options. The reality for most is quite different. Some drain assets, such as their retirement accounts, that could have been protected from creditors in bankruptcy. People throw good money after bad until they have no money left to seek relief.

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You May Make Surplus Income Payments

When you file for bankruptcy, you must do the following:

• disclose to the LIT information about all of your assets and liabilities
• advise the LIT of any property that was sold or transferred in the past few years
• surrender all your credit cards to the LIT
• attend the first meeting of creditors
• attend two counselling sessions
• advise the LIT in writing of any address changes
• if required, attend an examination at the Office of the Superintendent of Bankruptcy and
• assist the LIT as needed in administering your estate.

You may be required to make additional payments to your LIT for distribution to your creditors.

In addition to paying the LITs fees, you may be required to make additional payments to your LIT for distribution to your creditors. These are called surplus income payments.

Each month during the bankruptcy process, you must submit a copy of your pay stubs and proof of other income to the LIT. The LIT then calculates your surplus income.

Surplus income is the part of your earnings that exceeds the amount of income a family needs to maintain a reasonable standard of living. This amount is set by the OSB annually. The larger your family, the more you are allowed to keep the more you earn, the more you are required to contribute.

In other words, if your household income exceeds the level set by the OSB, then you must make additional payments to your LIT during your bankruptcy.

How Does Bankruptcy Impact Your Finances And Future Spending

As you would probably guess, your future ability to secure credit is seriously impacted by filing for bankruptcy, as it is basically a scarlet letter for lenders. Getting approved for a credit card after bankruptcy can be difficult. You typically wont be able to get one before a bankruptcy discharge, says Gonzalez. If you were considering making a major purchase, such as a car or a house, you will likely have to get a cosigner.

Thats why you are going to want to do everything to build your credit back up, so the best way to do this is by getting a secured credit card, which is basically a glorified debit card. There are some secured credit cards that dont even require a credit check, and you should be able to get one just by placing a deposit. After that, use your card to make small purchases and make sure to pay your bill in full and on time every month, she says. Looking for other ways to rebuild your finances? Here are 19 money-saving tips from self-made millionaires.

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Wipe Out Credit Card Debt And Most Other Nonpriority Unsecured Debts

Bankruptcy is very good at wiping out unsecured , medical bills, overdue utility payments, personal loans, gym contracts. In fact, it can wipe out most nonpriority unsecured debts other than school loans.

The debt is unsecured if you didn’t promise to give back the purchased property if you didn’t pay the bill. By contrast, if you have a secured credit card, you’ll have to give the purchased item back. Jewelry, electronics, computers, furniture, and large appliances are often secured debts. You can find out by reading the receipt or credit contract.

Exceptions To The Surrender Of All Assets

Some assets are not taken from you in bankruptcy. These are the exemptions that the federal and provincial governments have determined you need to survive and be a productive member of society. The goal of bankruptcy is to give you a fresh start not to punish or humiliate you. You will typically retain personal items and furnishings.

The list of exemptions is set by each provincial or territorial government. For example, in Saskatchewan, a motor vehicle with a value not exceeding $10,000.00 is exempt along with personal items such as clothing and jewelry to the extent of $7,500.00 and all household furnishings and appliances. In addition, RRSPs, RDSPs as well as equity in your residence to a maximum of $50,000.00 per registered owner are exempt from seizure. For the relevant exemptions in your province, we recommend speaking with a Licensed Insolvency Trustee.

For most people, the assets that may be lost in a bankruptcy include certain non-registered investments, RESPs, recreational equipment such as a boat, snowmobile, or motorcycle, etc.

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How Chapter 7 Works

A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities a schedule of current income and expenditures a statement of financial affairs and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned 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 . 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must 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. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.

Myth #: Most People Do Not Qualify For Bankruptcy Because Of The Means Test

This is not true. When the new bankruptcy laws passed in 2005, many debtors became frantic. Creditors tried to convince the country that bankruptcy would only apply to a small percentage of poor and destitute people. This was a massive fabrication of the new laws. In reality, the 2005 legislation changed the method in which debtors qualify for bankruptcy under the Means Test, but it did not prevent people from filing.

In fact, bankruptcy filings have actually increased since the new laws were enacted, especially in light of the foreclosure crisis. Dont believe what you hear whether on television, in the paper, or from friends or family members. To learn the truth about the current bankruptcy laws under Chapter 7 and Chapter 13, give our Firm a call.

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Filing For Bankruptcy Doesnt Mean That Youre Irresponsible

Medical debt is the leading cause of bankruptcy in the United States, and its possible to accumulate significant balances even if you have insurance. In most cases, you can seek to have this type of obligation discharged by filing for a liquidation bankruptcy. It also isnt uncommon for people to file for protection from creditors because they personally guaranteed debts incurred by their companies. Generally speaking, there isnt a link between how a person manages his or her own finances and how that person manages his or her companys finances.

Role Of The Case Trustee

When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee to administer the case and liquidate the debtors nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtors assets are exempt or subject to valid liens, the trustee will normally file a no asset report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases. But if the case appears to be an asset case at the outset, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002. A governmental unit, however, has 180 days from the date the case is filed to file a claim. 11 U.S.C. § 502. In the typical no asset chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a chapter 7 case who has a lien on the debtors property should consult an attorney for advice.

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