You Want To Stop A Lawsuit
If someone is suing you for medical debt, credit card debt, car accident damages, or a breach of contract, filing for bankruptcy will stop the suit. It makes no sense to pay to defend these lawsuits if you can have the debt discharged. But it is important to note that a bankruptcy will not stop all lawsuits.
Licensed Insolvency Trustees Have Two Major Frustrations Having To Do With The Decisions People Make As To When To File For Bankruptcy:
1. Trusting the wrong organizations. Many people feel that debt settlors or credit counsellors are the best people to help them deal with their debt problem.
Dealing with these organizations invariably leads to higher costs and often being given bad advice.
2. Believing what friends tell them about bankruptcy.
I have had to dispel many false stories people have heard about bankruptcy.
More than 122,000 people filed bankruptcy or a consumer proposal last year.
Why Should I File For Bankruptcy
Its doubtful everyone who seeks debt forgiveness through bankruptcy shares the same reason. But if you are feeling alone in your choice, it may help to know what the common causes are.
Researchers disagree on why people file for bankruptcy, and it likely has something to do with the fact that its not necessary to include that information when filing a bankruptcy petition.
One widely sourced 2009 study from Harvard University points to medical debt as the main reason behind personal bankruptcy. Sixty-two percent of all bankruptcies filed in 2007 were due to medical debt, according to that study. And 92 percent of those debtors were more than $5,000 in the hole for medical expenses. Another study from nonprofit organization the Center for Consumer Recovery concludes legal obligations to be the biggest source of bankruptcy. Seventy-eight percent of personal bankruptcy cases are due to pressure from debt collection lawsuits, according to the CFCR. That reason was followed by 18 percent saying aggressive debt collectors drove them to file, and finally, a small 4 percent say the volume of their debt was their reason to file for personal bankruptcy.
Here are the most common reasons cited for declaring bankruptcy:
- Loss of income
- Garnished wages due to a lawsuit
- Owing taxes
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There Are Options When Filing For Bankruptcy
If your financial circumstances do not allow you to pay all the debt you owe, bankruptcy can be a viable option for financial recovery. Before filing for bankruptcy, you might want to consider these other options for getting your finances back on track:
- Work directly with your creditors to reach a mutually beneficial debt settlement.
- Ask creditors for payment deferments, extensions, or reductions until you can get back on your feet.
- Carefully consider consolidating your debt into one loan with a single payment.
Consolidating debt comes with its own set of risks. A lawyer in your area can help you decide if these options will help relieve your current financial situation or if bankruptcy protection is a more viable option for you.
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How Can I Keep My Property In A Chapter 7 Bankruptcy
If you want to keep property like a home or a car but are behind on your payments, a Chapter 7 case may not be the right choice for you. That is because a Chapter 7 bankruptcy does not permanently stop a mortgage holder from being able to take your home or a car loan creditor from being able to take your car to cover your debt.
You may want to enter into a reaffirmation agreement. This is an agreement with your lender in which you agree that you will continue to make payments on that loan even after the bankruptcy wipes out your other debts. In exchange for your promise to pay the loan the lender will let you keep the property. If you fall behind on your payments, the lender can take back the property. The lender can also come after you personally for any money left on the loan even after bankruptcy.
For example, if you reaffirm your car loan but later fall behind on your car loan payments the bank can repossess the car and can collect on the debt. Your bankruptcy will not protect you from the banks collection efforts in that case. If you do not enter into a reaffirmation agreement the lender is under no obligation to allow you to retain the car even if you are current on the payments. Keep in mind that reaffirmation is totally voluntary and generally you must show you can afford the payments in order for the court to approve your reaffirmation request.
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Pros And Cons Of Bankruptcy: Chapter 13
Pros of Chapter 13:
- You are not forced to sell your home or other assets.
- Chapter 13 buys you time, giving you 3-5 years to satisfy your creditors.
- As with Chapter 7, collection activity against you is halted.
Cons of Chapter 13:
- You will have to appear in Federal Court at least once for a hearing.
- Your credit report takes a hit, although the impact might not be as severe as with Chapter 7 bankruptcy.
- Compared to Chapter 7, you’ll most likely have to pay back a larger portion of your debt.
- If you miss a payment, your Chapter 13 reorganization plan could be cancelled and you’re right back to square one.
- Attorney fees associates with a Chapter 13 bankruptcy will be slightly higher than with a Chapter 7.
Your Creditors May Hold A Meeting
Sometimes, a meeting of creditors is required or requested. The purpose of this meeting is to
- allow creditors to obtain information about the bankruptcy
- confirm the appointment of the LIT
- appoint up to five inspectors to supervise the administration of your estate and
- allow creditors to give direction to the LIT.
If a meeting is called, you will be required to attend.
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What Happens When I File A Chapter 7 Case
A bankruptcy proceeding is initiated by filing a petition with the bankruptcy court. When you file for Chapter 7 liquidation, the petition operates as an automatic stay, which generally prevents creditors from pursuing debt collection actions against you unless the bankruptcy judge approves it first. The automatic stay goes into effect immediately upon filing the petition no court hearing or approval by a judge is necessary. When the case is filed, the United States trustee for your judicial district appoints a trustee to review your financial affairs and administer your case. The appointed trustee has the power to liquidate any asset you own that is not by law exempt from collection or subject to a lien in order to pay your creditors.
Will Bankruptcy Wipe Out All My Debts
No. Congress has decided that bankruptcy cant wipe out certain debts. These debts include:
- Money owed for child support, alimony, and certain other debts related to divorce.
- Court restitution orders and criminal fines.
- Some taxes.
- Debts not listed on your bankruptcy petition.
- Loans you got by knowingly giving false information to a creditor, who reasonably relied on that false information in making you the loan.
- Debts resulting from willful and malicious harm.
- Most student loans.
- Mortgages and other secured liens, including car loans, which are not paid in the bankruptcy case.
- Debts created from large cash advances, from luxury purchases, or from many large charges to a credit card account within six months of filing bankruptcy.
- Debts created from larceny or embezzlement
- Debts created as a result of DUI
- Debts owed to a pension or profit sharing plan.
What Should I Know Before Filing For Bankruptcy
When debt is overwhelming, and you see no reasonable way to get a handle on it, bankruptcy is usually a good option. However, you must have the right information to ensure your filing is a success.
According to Kiplinger, there are some key bankruptcy facts that every person should know. Keeping the following points in mind will help you navigate the process efficiently.
Is A Bankruptcy Filing Necessary
Filing for bankruptcy can be an easy way to wipe out debt and maximize the amount of money available to pay monthly bills. However, many seniors don’t feel comfortable filing for bankruptcy, and it isn’t always necessary or even a good idea.
Here are two situations that make filing bankruptcy of questionable value for seniors:
- You don’t have anything a creditor can take. Creditors aren’t allowed to take the things needed to maintain a home, such as household goods, a modest car, Social Security funds, and many retirement accounts. Because these things make up all of what many seniors own, many are “judgment proof,” and therefore, filing for bankruptcy isn’t necessary. Even so, some judgment-proof individuals will file to stop creditor calls and eliminate the worry of losing money from a bank account.
- You have too many assets to benefit from bankruptcy. When you own property and income that isn’t protected from creditors, filing for bankruptcy might not be a good idea. Chances are you’d lose the property in Chapter 7. In Chapter 13, you’d have to make a high Chapter 13 repayment plan payment because you must pay for any property you’re not entitled to protect .
Find out what bankruptcy can and cannot do to improve your financial position.
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Is There More Than One Kind Of Bankruptcy
Yes. For individuals, there are two main types of bankruptcies that can be filed: Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 cases are also referred to as “liquidation” cases, while Chapter 13 cases are commonly referred to as “debt adjustment” or “wage earner” cases. Individuals may also be eligible for a Chapter 11 bankruptcy, which allows the debtor to propose a plan for reorganization to pay creditors overtime, but Chapter 11 is normally used to reorganize a business. Farmers and fisherman can also file a separate type of bankruptcy available only to farmers under Chapter 12. The word “Chapter” is simply a reference to a chapter number in the Bankruptcy Code.
It Stops Creditor Harassment/collection Calls
A Chapter 7 case stops creditor harassment. It is stressful dealing with creditors. The endless telephone calls, threatening letters, and lawsuits can harm your health. When creditors call you at work, your performance at work may suffer. In some cases, creditor calls at work could get you into trouble with your boss. Chapter 7 stops all collection actions.
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Are Seniors Creditor Proof
If a senior only has credit card and bank debts, they rent, they do not own significant assets, and do not bank with any bank they owe money to, then they might be what we would call judgement or creditor proof.
With the exception of Canada Revenue Agency for unpaid income tax debts, creditors cant garnish pension income. That means if a seniors sole source of income is their pension, and they have no other assets, they could follow a do nothing strategy.
The downside of this strategy is that collection calls will continue. They will need to explain to any collection agents who do call that they are on a fixed pension income and cant pay.
If the senior has other sources of non-pension income, such as a part-time job, this income can be garnisheed and in those circumstances bankruptcy may be necessary.
What Happens When You Declare Bankruptcy
As mentioned above, bankruptcy will remain on your credit reports for years into the future, and those reports may be consulted by potential lenders, insurance companies, landlords, employers, and others. You can’t do anything to remove the information ahead of schedule, but it’s worth checking to make sure that it’s accurate and doesn’t cast you in an even more negative light. You are entitled to at least one free report each year from each of the three major credit bureausEquifax, Experian, and TransUnionthrough the official, federally authorized website, Annual Credit Report.com. If you find any errors on a report, you should ask that that they be corrected.
Aside from your credit report, bankruptcy is also a matter of public record. So bear in mind that anyone can request a copy of the filing.
Because your credit is severely damaged by bankruptcy, you may find it difficult to borrow if you need to, including a loan to buy a car or a mortgage to buy a home. It will also be difficult to obtain a conventional credit card. One alternative is to apply for a secured credit card, where you deposit money with the card issuer to back up your line of credit. If you use the card judiciously, making all your monthly payments on time, you may soon qualify for a regular, unsecured credit card. A secured credit card is often recommended as a tool for rebuilding a damaged credit record.
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Do I Need A Lawyer To Represent Me If I File A Bankruptcy Case
You can represent yourself in a bankruptcy proceeding if you choose, but you do so at your own risk. It is crucial that bankruptcy cases be filed and handled correctly, and you must comply with all of the rules, which are highly technical. Bankruptcy courts in Illinois generally require that all bankruptcy materials be filed electronically and not through written papers, but if you are representing yourself, the courts will typically allow you to file your documents in paper form with the clerk’s office. In every bankruptcy case, each individual is required to prepare and submit to the court detailed forms concerning his or her property, debts, and financial affairs, which are difficult to complete without the help of an attorney. Additionally, options available to each individual, such as property claiming exemptions, filing jointly with a spouse, and what type of bankruptcy to file, probably cannot be properly assessed without the assistance of an experienced attorney.
This pamphlet is prepared and published by the Illinois State Bar Association as a public service. Every effort has been made to provide accurate information at the time of publication.
For the most current information, please consult your lawyer. If you need a lawyer and do not have one, call Illinois Lawyer Finder at 922-8757 or online www.IllinoisLawyerFinder.com
Choose The Right Bankruptcy Filing For You
We are proud to represent our clients in four primary areas of bankruptcy relief. Called Chapters, each of these forms of bankruptcy has its own advantages and disadvantages. The four Chapters used for filing for bankruptcy, where we help clients find debt relief, include:
- Chapter 7: Straight bankruptcy, where debts are fully forgiven
- Chapter 11: Complex business bankruptcies with debt reorganizations and restructures
- Chapter 12: Debt relief and repayment plans for family farmers and family fishermen
- Chapter 13: Debt relief for income earners that can help stop foreclosures and other looming debt recovery efforts
When you decide to declare bankruptcy, your lawyer will help you choose the right Bankruptcy Chapter for your financial situation. Filing for bankruptcy is a complex, time-consuming procedure. Your lawyer can help you understand and navigate the filing process from your initial petition to final discharge.
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When And Reasons Why To File For Bankruptcy
However, declaring bankruptcy can also be expensive and time-consuming and have a huge impact on your credit score. This, in turn, can have far-ranging effects on other aspects of your life, such as buying a new car or home or even applying for jobs. Also, waiting to declare bankruptcy until youre completely broke can actually work against you.
If youre contemplating declaring bankruptcy, heres what you need to know.
Dealing With Your Car Loan
If you own a car that you still owe on, youâll have to let the bank and the court know what you want to do with it one one of your bankruptcy forms.
If you want to surrender the car to the lender and discharge the debt, you donât have to do anything other than stop making your payments. The bank will either file request with the bankruptcy court to ask permission to retake the car, or wait until your discharge is granted before picking it up.
If you want to keep the car, you can either reaffirm the loan or redeem the car. If youâre reaffirming your loan, the bank will send you a reaffirmation agreement after your case is filed. You have to complete and sign the agreement and return it to the bank within 45 days from your 341 meeting. The bank files the signed agreement with the court for approval.
To redeem the vehicle you have to file a motion with the court and, once granted, buy the car from the bank for its current value. This gets you out of having to pay the amount left on the loan, but payment has to be made in one lump sum.
Filing for bankruptcy takes some preparation. Hiring a good bankruptcy attorney is one way to file. But if you can’t afford the attorney fees to hire one and you need a fresh start, Upsolve may be able to help. If you’re eligible, our free web app will walk you through the process and help you prepare your forms for filing with the court.
Check out the video below â¬ï¸ to see how it works!
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