Chapter 7 Vs Chapter 13
Chapter 7 and Chapter 13 are the two most common types of personal bankruptcy.
In a Chapter 7 bankruptcy, a trustee appointed by the bankruptcy court will liquidate many of your assets and use the proceeds to pay your creditors some portion of what you owe them. Certain assets are exempt from liquidation. Those typically include part of the equity in your home and automobile, clothing, any tools you need for your work, pensions, and Social Security benefits.
Your nonexempt assets that can be sold off by the trustee include property , a second car or truck, recreational vehicles, boats, collections or other valuable items, and bank and investment accounts.
In Chapter 7, your debts are typically discharged about four months after you file your bankruptcy petition, according to the Administrative Office of the U.S. Courts.
In a Chapter 13 bankruptcy, by contrast, you commit to repaying an agreed-upon portion of your debts over a period of three to five years. As long as you meet the terms of the agreement, you are allowed to keep your otherwise-nonexempt assets. At the end of the period, your remaining debts are discharged.
In general, people with fewer financial resources choose Chapter 7. In fact, to be eligible for Chapter 7, you must submit to a means test, proving that you would be unable to repay your debts. Otherwise, the court may determine that Chapter 13 is your only option.
Can Credit Card Companies Sue Me After I File For Bankruptcy
When you file for bankruptcy, the automatic stay protection goes into effect and prevents credit card companies from initiating or continuing a suit against you to collect money.
If the credit card company filed a debt collection lawsuit against you before you filed, and the case hasnt been settled the lawsuit cant proceed while the automatic stay is in effect, unless the bankruptcy court gives the card company permission.
If you do receive a discharge in Chapter 7, most often that will include discharge of judgments from debt collection lawsuits.
Keeping Your Home In Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, the court will liquidate most of your unsecured debts thats debt like credit card debt and personal loans, that isnt attached to an asset like a house or a car. Once that debt is out of the way, it should make it easier to make your mortgage payments.
If you cant pay your mortgage after bankruptcy, the result will be the same as not paying it before bankruptcy you eventually will lose your home.
If you know you are going to file for bankruptcy and want to keep your house, you can see if your mortgage lender would work with you on modifying your mortgage agreement in a way that would allow you to catch up on your payments. Do this before you file for bankruptcy. Once you file, the court takes over your assets and its out of your hands.
Here are some of the things that make it more likely your house will be protected if you file for Chapter 7 bankruptcy:
- You are up to date on mortgage payments
- All, or most, of your equity is protected with an exemption
- You owe more on the house than its worth
- You demonstrate to the court you can make your mortgage payments on time
- You negotiate with your lender before you file for bankruptcy on a loan modification.
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Debts That Are Difficult To Discharge In Bankruptcy
Student loans are notoriously difficult to discharge through bankruptcy it is only possible if you can demonstrate undue hardship to yourself or your dependents, such as being unable to maintain a minimal standard of living. In some cases, a court may discharge part, but not all, of your student loan debt. If student loan debt is a major reason for your considering bankruptcy, contact your loan servicer first and see if itâs possible to negotiate a repayment plan that would work for you. In the case of federal student loans, for example, several repayment plans are available.
You cannot have income tax debts discharged without a special exemption, which can only be obtained by petitioning the bankruptcy court and explaining why you deserve relief. So if you have income tax debts that you cannot repay, then you may be better off consulting with a tax attorney to discuss your options before filing for bankruptcy.
In the case of federal taxes, for example, the Internal Revenue Service can offer several alternatives to people who are unable to pay what they owe. One is an offer in compromise, in which the IRS agrees to accept a lesser amount. The IRS may also arrange for a payment plan, or an installment agreement, that will allow you to pay your taxes over an extended period of time.
Should I File For Bankruptcy For Credit Card Debt
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In a Nutshell
Written byAttorney Jonathan Petts.
People file for bankruptcy relief for many reasons. In most cases, the person experienced a financial hardship that resulted in the inability to repay their debts. If you are struggling with debt you can’t pay, a Chapter 7 bankruptcy case might be an affordable way for you to get out of debt.
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Be Careful With Cash Advances Before Filing
Cash advances on your credit card can also be a negative factor when you file for bankruptcy. The debt is not discharged if you take out over $950 in cash advances 70 days prior to filing for bankruptcy. This stands regardless if you use that advance for essentials or luxury purchases.
There is an exception for the cash advance penalty. For example, lets say you took out a cash advance to repay student loans. You then get diagnosed with a severe medical condition that renders you unable to work, so you file for bankruptcy. Because you are unable to repay this debt due to extreme hardship, it will be discharged. Note that if you took out the cash advance to pay your student loans intending to discharge the debt in bankruptcy, you can be sued for nondischargeability.
Connect with top-rated bankruptcy attorneys to make sure you avoid issues when you file.
However, if you can prove that the recent purchases are necessary items, such as heat for your home and medical expenses, those may qualify for discharge.
Filing Bankruptcy On Credit Cards Only
Filing bankruptcy just to eliminate credit card debt is not practical for one reason: You must include all debts when you file bankruptcy. Thats true whether youre filing Chapter 7 or Chapter 13.
So, if you had no other debts, there are better options for paying off , like debt management or debt settlement programs, that wouldnt be as drastic or have as much negative impact as bankruptcy.
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Adversary Proceedings For Credit Cards In Bankruptcy
If a lender accuses you of fraud in bankruptcy, they will need to file a notice of adversary proceedings. This step is mandatory if a credit card company wants to challenge the dischargability of credit cards in bankruptcy based on fraud. There are very specific time-frames involved for a credit card company to file this notice. If the claim is not timely filed, the creditor may be barred from challenging the discharge of credit cards in bankruptcy.
The court looks at several factors when deciding whether or not there is fraud for the credit cards in bankruptcy. The bankruptcy judge will look at the following factors, but it is important to remember that not one single factor is outcome dispositive. The judge will look at all of the facts relevant to these factors before making a decision.
The court will evaluate: the length of time between the charges and the bankruptcy filing whether or not an attorney had been consulted concerning the filing of bankruptcy before the charges were made the number of charges made the amount of the charges the financial condition of the debtor at the time the charges were made whether the charges were above the credit limit of the account whether the debtor made multiple charges on the same day whether or not the debtor was employed the debtors prospects, whether there was a sudden change in the debtors buying habits and whether the purchases made were luxuries or necessities. See In re Dougherty.
You Cant Keep The Property When The Credit Card Debt Is Secured
In rare situations, the credit card lender may take a security interest in some of your property in the credit card agreement. Jewelry, electronics, mattresses, furniture, and large appliances often are collateral securing the purchasecheck your contract and receipt. If the debt isnt unsecured, youll be able to wipe out the debt, but the creditor will be entitled to the property securing the obligation. Learn more about secured property.
Researching Debt Settlement Companies
Before you enroll in a debt settlement program, do your homework. Youre making a big decision that involves spending a lot of your money money that could go toward paying down your debt. Check out the company with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm youre considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Enter the name of the company name with the word “complaints” into a search engine. Read what others have said about the companies youre considering, including news about any lawsuits with state or federal regulators for engaging in deceptive or unfair practices.
What Does It Mean To File Chapter 7
People often turn to Chapter 7 bankruptcy to erase their credit card debt most of which is unsecured. That means theres no collateral, such as a house or car, that a creditor can take to help cover the debt you owe.
Federal courts handle all bankruptcy cases including Chapter 7, which typically enables someone to wipe out all of their unsecured debts, including credit card bills.
As soon as you or your lawyer files court documents for Chapter 7 bankruptcy, youre usually no longer required to make payments on most unsecured debts included in your bankruptcy case.
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Should I Keep Paying On My Credit Cards After Filing For Bankruptcy
If you successfully file bankruptcy, you will no longer be expected to make credit card payments. Instead, you will have to follow the Chapter 13 repayment plan or liquidate your applicable assets under Chapter 7. Continuing to make payments on credit card debt that will be discharged at the end of your bankruptcy wont really make sense.
However, if you are thinking about filing bankruptcy for credit card debt, you need to continue to make the payments that you can until you have decided for sure and found out that you qualify to file. To file Chapter 7 bankruptcy, you have to pass the means test. And if your debt is too high or youre not current on your taxes, you may be unable to file Chapter 13. In either case, if you skipped credit card payments but then found out you dont qualify for bankruptcy, you might have made your situation much worse.
What Happens When You Declare Bankruptcy In Canada
What happens when you declare bankruptcy in Canada?Do you get out of all debts if you declare bankruptcy?What happens to your debts when you go bankrupt in Canada?Does declaring bankruptcy clear all debts?
These are common questions and complex topics. The answers depend on the type of debt, and in some cases on your payment status. There are actually some debts that stay , even if you file for bankruptcy.
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How Creditors Can Win
For the first type of claim, the credit card issuer can use your financial documents to prove that you lied, or left out important information, on your application. For the second type of claim, the credit card issuer must show that you used the card without intending to repay the debt.
Its impossible for the court to find out what you were actually thinking when you got a credit card and made purchases, so it will look at circumstantial evidence that you acted fraudulently. For example, if you make a lot of large purchases immediately before you file for bankruptcy, it may look to the court like you never intended to repay the debt.
Likewise, the court may be suspicious if you take out a brand-new credit card, make purchases, and file for bankruptcy shortly thereafter. Using the credit card for luxury goods or travel is another indicator of fraudthe court will assume that you knew you couldnt repay the cost of those things. Taking out large cash advances shortly before filing is also suspicious.
In addition to these specific types of uses, the court will examine your general financial behavior. Borrowing on one card to pay off another, regularly exceeding your credit limit, using your card when youre unemployed, and filing when you have a large outstanding balance can all indicate that you didnt intend to repay the debt.
How The Creditor Can Challenge Dischargeability
If a credit card company wants to argue that a debt is nondischargeable, it must file a complaint with the bankruptcy court. Unless it files such a complaint, even claims for luxury goods and cash advances are discharged along with other obligations against you.
In Chapter 7 bankruptcy, the deadline for filing complaints challenging the dischargeability of a credit card debt is 60 days after the first meeting of creditors.
If a creditor files a nondischargeability complaint, you must file a timely answer if you want to dispute the creditor’s claim. If you file an answer, the bankruptcy court will hold a hearing before deciding whether or not your debt is dischargeable.
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Can You Declare Bankruptcy On Credit Cards Only
While credit card debt is a major reason people wind up filing for bankruptcy, you cannot file for bankruptcy on credit card debt alone, as the law requires that all your debts be listed in the bankruptcy documents. However, because bankruptcy can eliminate credit card and other unsecured debts, filing will often put you in a better financial position that allows you to keep your home.
Keeping a house is a major concern for most people filing for bankruptcy in Ohio, and there are several ways that bankruptcy can allow you to keep your house while discharging unsecured debt such as from credit cards. You will be able to keep your home if you can meet the requirements of the bankruptcy chapter that you choose, whether Chapter 7 or Chapter 13.
Bankruptcy laws are complicated, and our Ohio bankruptcy lawyer can help you choose the correct chapter and increase the chances of your being able to keep your home, car, and other assets. The skilled and compassionate Ohio debt relief attorneys at Fesenmyer Cousino Weinzimmer understand that even the most well-intentioned people can find themselves in financial difficulty.
Filing Bankruptcy In Florida For Credit Card Debt
For many, bankruptcy is the best solution when credit card debt is out of control. You may be able to wipe out all the credit debt without even paying a portion of what is owed. However, bankruptcy is not right for everyone, you should consult with a bankruptcy lawyer in Tampa for advice about your specific case.
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How Accounts Appear On Your Credit Reports
Before filing for bankruptcy, you probably had bills you struggled to keep up with credit cards, medical debt and more.
When you include those accounts in a bankruptcy filing, theyll still be reported on your credit reports. Accounts discharged in bankruptcy can be reported as discharged or included in bankruptcy with a zero balance. Even though you owe $0 for them, theyll still appear on your reports. If you apply for credit, lenders may see this note when they check your reports, and they may deny your application.
But heres that good news we promised: Accounts included in a bankruptcy filing wont be reported as unpaid or past due anymore, and you may feel relief without those financial burdens.
Your credit scores will eventually start rebounding with those positive effects, Huynh says. Thats assuming, of course, you use credit responsibly from here on out.
What Happens To Credit Card Debt In Chapter 7 And Chapter 13 Bankruptcy
If you file for Chapter 7 bankruptcy, can you keep a credit card so you can use it afterward? While it generally is not a good idea to keep a credit card in Chapter 7 bankruptcy, in most cases you can do it.
People often turn to debt settlement or debt consolidation agencies in a good faith attempt to pay back their debts.
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Filing bankruptcy can help you get rid of credit card debt however, if you use your credit cards excessively knowing you intend to file bankruptcy, the credit card company can accuse you of fraud and take steps to make sure you still have to repay the debt.
While you can use your credit cards before filing for bankruptcy, it’s usually best to stop using them altogether. Depending on how you use them and what you use them for, you could run the risk of having to repay the debt after your bankruptcy is over. If you use your credit cards for necessities prior to bankruptcy, you’ll probably be in the clear.
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