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How To Start Rebuilding Your Credit After A Bankruptcy
One of the most important things to remember about a bankruptcy is that it won’t linger on your credit reports forever. More good news: You can do a lot to start rebuilding your credit before the bankruptcy disappears from your credit reports. Here are six steps to take.
What Not To Do
The biggest mistake people make in bankruptcy filings is trying to game the system. All your assets may be seized in a bankruptcy and failing to disclose all of them can result in criminal charges
Just ask tennis player Boris Becker, currently looking at jail time in the U.K. for hiding assets. Do not transfer property to family or friends before you file. It will be clawed back.
Honest debtors get a fresh start, while dishonest ones can potentially go to jail.David Leibowitzhead of Lakelaw
Also dont max out your credit resources before you file. The court will not look kindly upon it. Never use funds from retirement accounts to pay off debt.
Truth and transparency are critical to the bankruptcy process, said Leibowitz. Honest debtors get a fresh start, while dishonest ones can potentially go to jail.
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When To Declare Bankruptcy: 8 Questions To Ask Yourself
Most people take their financial obligations seriously and want to pay their debts in full, but knowing when to file bankruptcy and when to negotiate or use another strategy can help put you on the road to financial health.
Here are a list of questions that can help you assess your financial health and give you insight into whether bankruptcy may be right for you. You should also discuss these questions with an attorney.
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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A Judge Decides Your Case
With chapter 7, the bankruptcy judge appointed to your case will make a decision on whether your debts can be discharged. If so, the judge will issue a court order discharging your debts.
With chapter 7 bankruptcy, you wont typically need to appear in court unless an objection is raised. If you file chapter 13, you may have to appear before a bankruptcy judge for a plan confirmation hearing.
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What If I Cant Afford A Bankruptcy Attorney
If you are at a low-income level and cant afford an attorney, there are still options for getting help filing your bankruptcy case.
Here are three choices worth researching for help filing a bankruptcy.
- Legal Aid Society
- Pro Bono Legal Services
Generally speaking, there are income limits based on the poverty line that you must satisfy to receive free help. Most of the free legal service organizations expect your income to be less than 200% of the poverty line for a household your size.
For example, the poverty line for a single person in 2022 was $13,590, meaning to qualify for free legal assistance, the household income would have to be less than $27,180 .
A 2-person household has a poverty line of $18,310, which makes the qualifying standard for free legal services, household income of less than $36,620 .
Add $4,720 for each additional person in the household to determine the poverty line, then multiply that number by 2 to see if you qualify for free assistance.
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What Is Chapter 7 Bankruptcy Should I File A Lawsuit What Is The Best Way To File
In the United States, Chapter 7 bankruptcy chino is a reliable legal tool that allows you to eliminate numerous debts, such as credit card debt, medical debt, car loans, and payday loans. Over 39 million Americans have filed for bankruptcy, according to experts. It occurs more frequently than most people believe.
If youre considering Chapter 7 bankruptcy, one excellent question to ask yourself is: do I have more debt than Ill ever be able to repay, given my current income and assets? If you answered yes, Chapter 7 bankruptcy might be the best option for you.
What exactly is Chapter 7? What is the mechanism behind it?
In a Chapter 7 bankruptcy, youll fill out and submit forms detailing everything you earn, spend, own, and owing to the bankruptcy court. If youre employed, youll also need to produce recent tax returns and pay stubs.
Your forms and documentation will be reviewed by a trustee, an official assigned to your case. Youll meet with them for a brief meeting during which theyll ask you some basic questions about the information in your paperwork.
Youll receive a notice in the mail from the court confirming your bankruptcy discharge a few months later. The vast majority of honest persons complete their bankruptcy documents thoroughly and follow all necessary stages to get their bankruptcy accepted by the court.
What debts can be forgiven and which cannot?
The following typical debts can be discharged under Chapter 7 bankruptcy:
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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.
How Much Does Bankruptcy Cost
Another consideration is the cost of filing for bankruptcy. Filing typically costs a couple of hundred dollars, but hiring an attorney to represent you and protect your interests could cost a great deal more. Although individuals can act on their own behalf without an attorney, by going it alone you run the risk of losing certain rights or property. Generally speaking, because of their knowledge of bankruptcy law and experience with the courts, an attorney can be worth the money.
After bankruptcy, you will probably find it difficult to get a credit card, except at a very high interest rate. One alternative is a secured card, where you put some money on deposit with the issuer.
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Choose Between Chapter 7 And Chapter 13
Before you file, decide which type of bankruptcy serves your needs. The most common bankruptcies filed by individuals are chapter 7 and chapter 13, which differ in certain steps and outcomes.
With chapter 7, much of your property is sold and used to pay off debts. Remaining eligible debts get discharged so you dont have to repay them.
A chapter 13 bankruptcy protects secured assets, halts collections, and lets you reorganize your debts, making timely payments on them for a period of either three or five years. If you catch up on back payments during the repayment period, youre allowed to keep your assets.
Your Credit Could Take A Hit
The other major consequence of a Chapter 7 bankruptcy is the impact to your credit. A Chapter 7 bankruptcy can stay on your credit reports for up to 10 years from the date you file.
That doesnt mean youll never be able to open a credit card or take out a mortgage again, but it does mean you might have to pay a lot more in interest rates and fees when borrowing.
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Waived Bankruptcy Filing Fee
Low-income individuals may be able to pay the $338 filing fee in installments, or have the fee waived completely. These individuals are on the path to a low-cost bankruptcy.
To have the fee waived, you must show that your income is below 150% of the poverty level for your family size in your state, and that you cannot pay the fee in installments. Fill out and file Form 103B: Application to Have the Chapter 7 Filing Fee Waived.
If you dont qualify to have the fee waived, you could apply to have the fee paid in installments, which spreads the cost over as many as four payments. For this approach, file Form 103A, Application to Pay the Filing Fee in Installments. On the application, you must state you cannot pay the entire fee. You then offer a payment plan, but it cannot exceed four payments or extend longer than 120 days after filing.
Not paying the fees on time and in a proper manner will be a serious issue to the bankruptcy trustee, so once the court approves the installment request, be diligent about paying the fees and paying on time.
If Youre Thinking About Filing For Chapter 7 Bankruptcy Here’s An Overview Of What You’ll Need To Do
Filing for Chapter 7 bankruptcy is a big decision, but the process is predictable. If you want to know what to expect or how to file for Chapter 7 bankruptcy, this article is an excellent place to start. You’ll learn:
- the nine steps involved in filing bankruptcy, and
- how to find more information about a Chapter 7 bankruptcy case.
Once you understand the bankruptcy filing process, you’ll be ready to learn whether you can keep your property and erase your debts in Chapter 7. You’ll find links to helpful resources at end of the article.
- Get answers to questions about bankruptcies.
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Keep Up With Your Chapter 13 Plan Payments
Woohoo! The hard part is over! Congratulations on getting your Chapter 13 plan approved! Now youâll need to continue making your monthly plan payments for the next 3 to 5 years before your case successfully concludes and your discharge can be entered.
The first payment is due within 30 days after you file your bankruptcy forms. Keep in mind that up until your case is confirmed, your monthly plan payments can increase or decrease. If you fall behind on your payments and are unable to catch up within a reasonable amount of time, your case will be dismissed and you will not receive a discharge.
Attend A 341 Creditors Meeting
The creditors meeting, called a 341 meeting, is where the bankruptcy trustee appointed to your case will ask you questions under oath about your financial situation. Specifically, the trustee will verify your identity, ask about the accuracy of your bankruptcy petition and schedules and give you the chance to reveal any changes that have taken place since you filed your documents.
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What Happens When You File For Bankruptcy
There are a lot of misconceptions about what it means to file for bankruptcy, which can lead to unnecessary stigma.
For instance, there is a commonly held belief that those who file for bankruptcy are irresponsible when it comes to managing money. In reality, the high cost of medical expenses is one of the leading causes of bankruptcies.
Other misconceptions are that if you file for bankruptcy, you can lose all of your belongings or never be eligible for credit again. Neither of these statements is true. Your assets are often protected by federal or state exemption laws though you may have to sell some of your belongings in a Chapter 7 case and many bankruptcy filers are able to secure forms of credit again.
There are six types of bankruptcy, but the average consumer will usually file one of two:
- Chapter 7: This is the most common form of bankruptcy for individuals. With this method, valuable assets are liquidated to settle debts. Chapter 7 is typically split into asset cases and no-asset cases if you are determined to be a no-asset filer, you wont have to give up your belongings. Chapter 7 bankruptcy can stay on your credit report for up to 10 years, starting on the filing date.
- Chapter 13: This is the second most common form of bankruptcy that individuals file. With Chapter 13 bankruptcy, a three-to-five-year repayment plan is created. This form of bankruptcy can stay on your credit profile for up to seven years.
