When To File For Bankruptcy
Bankruptcy law exists to help people who have taken on an unmanageable amount of debtoften as a result of large medical bills or other unexpected expenses that are no fault of their ownto make a fresh start. But it isnt a simple process and doesnt always lead to a happy ending.
So before filing for bankruptcy, be sure to explore all your alternatives and be prepared for some of the negative consequences described above. If you decide that bankruptcy is your only viable optionas hundreds of thousands of Americans do every yearremember that the blot on your record will not be permanent. By using credit carefully in the future and paying your bills on time, you can begin to rebuild your credit and gradually put bankruptcy behind you.
How Does Filing Bankruptcy Impact Credit
Your credit may not be in tip-top shape by the time you consider filing for bankruptcy, since high balances and missed payments are the top factors affecting your credit score. Still, the presence of a bankruptcy on your credit report will severely impact your credit scores and creditworthiness the entire time it is on your report. That impact will lessen as time passes, however. Chapter 7 bankruptcy remains on your report for up to 10 years, and Chapter 13 stays there for up to seven years.
It’s not an ideal credit situation, of course, but you can use the time to manage your debts wisely and make consistent on-time payments. Like with any damage to your creditworthiness, it’s possible to rebuild your credit with some focus and patiencealong with using the debt relief provided by the bankruptcy to get back on track financially.
What Happens If I Make A Mistake In My Bankruptcy Papers
Both you and your bankruptcy attorney have to make a reasonable investigation to be sure that everything in your bankruptcy papers is correct. If you or your attorney dont do this, either or both of you may be ordered to pay costs and attorneys fees to your creditors.; However, no fees and costs can be assessed against an attorney who represents a debtor with household income below the state median. Fees and costs also cannot be assessed against an attorney who represents a debtor in a Chapter 13 bankruptcy.
Read Also: What Does Chapter 13 Bankruptcy Cover
What Must I Do Before I File For Bankruptcy
Before you file for bankruptcy, you must get individual or group counseling from an approved consumer credit counseling agency. You must do this within 180 days before you file bankruptcy. In emergency cases, you can file bankruptcy before you do credit counseling. However, you must start credit counseling within 30 days after you file bankruptcy. If you dont, your bankruptcy will be dismissed. A list of approved credit counseling agencies can be found on the Internet at the following;website. Some agencies offer phone or internet counseling. After you file for bankruptcy, but before youre granted a discharge order in bankruptcy, you will also be required to take a financial management course.
How Long Will Bankruptcy Last
Bankruptcies can last between three and five years or ten years, depending on filing under Chapter 13 or Chapter 7. If you are in a position where bankruptcy might be an appropriate solution to your debts, then its best to speak with a qualified bankruptcy attorney who specializes in this area of law so they can help answer any other questions that you might have related to how often someone can declare bankruptcy before there are no options left but the liquidation of assets by court order.;
Avoid Favoring Creditors Before A Bankruptcy Filing
Many consumers want to “do the right thing” and pay certain creditors in full before filing for bankruptcy. For example, they might want to make sure mom’s loan gets paid or that the friendly people at Discover get paid in full. These transactions are prohibited.
You certainly can pay your bills as you would in the ordinary course. If you incur $100 on American Express this month, you can pay it off next month. However, you cannot make an out of the ordinary payment to your favorite creditor while not paying others. These payments are called preferential transfers and may trigger a “clawback” lawsuit. The bankruptcy court trustee responsible for administering the case sues the entity or person to get the money back in bankruptcy clawbacks of preferential and fraudulent transfers.
Who Should Wait To File
Certain activities can complicate a Chapter 7 bankruptcy and waiting a little bit of time can help. If you’re still relying on your credit cards to make ends meet or you’ve made large purchases in the last 6 months, then it’s best to wait to file and pay off your most recent charges first.
If you paid back or transferred property to a family member or friend in the last year, then itâs best to wait to file, if you can. You have to disclose these activities in your bankruptcy paperwork and your trustee will ask you about them.
If you’re suing someone or planning to sue someone, then itâs best to hold off on filing bankruptcy until you know the final outcome of that case, if possible. People often delay Chapter 7 bankruptcy if theyâre expecting a personal injury settlement.
Also, if you owe your landlord money and you don’t plan to move, try to catch up on missed rent payments before filing. The same generally goes for car loans, if you want to keep the car.
Finally, if you expect your financial situation to get worse, then you may want to delay your filing. You can only file Chapter 7 bankruptcy once in an 8 year period, so you donât want to file if you know that youâre going to fall into more debt.
Get Help Filing A Chapter 7 Case Without Paying An Attorney Fee
Although it can seem complicated, many people who file for Chapter 7 have a pretty straightforward cases. In these easier cases, it usually makes sense to file on your own but just get help with the paperwork.
Donât know where to start? A nonprofit like âUpsolveâ might be all you need. This free legal aid nonprofit can help you do your own paperwork and give you guidance on what to expect throughout the process.
Donât forget â Upsolve is free! The only costs you have to cover are the ones required by the court. Take their screener here to see if you qualify for their assistance!
Our unique bankruptcy software walks you through the process of filing a Chapter 7 case step-by-step. You can confidently complete your bankruptcy forms, file the forms with the bankruptcy court, and attend your bankruptcy hearing without an attorney.
In most cases, debtors receive their bankruptcy discharge within four to six months after filing their Chapter 7 bankruptcy petition.
You are required to pay the filing fee to the bankruptcy court and pay the fee for your bankruptcy courses. The filing fee is a standard fee, but you can typically locate a company that provides the bankruptcy courses online for $10 to $15 per course .
When Timing Issues Are In Conflict
Dont be surprised if you have multiple issues pulling you in different filing directions. When you should file your bankruptcy case is often a judgment call.
For instance, if you receive a wage garnishment notice shortly after taking out a cash advance, youll have to decide whether preventing the garnishment by filing for bankruptcy is worth the risk of an allegation of presumptive fraud.
But delaying a filing doesnt necessarily insulate you from a fraud allegation and you might decide to pay off the cash advance before filing and take the chance that the trustee will unwind the transaction.
Other complicated situations can present themselves, too. Here are a few examples.
These decisions can get tricky quickly, and in most cases, youll benefit from the counsel of a knowledgeable bankruptcy attorney.
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Immediate Relief In The Form Of A Much Needed Breathing Spell
The moment your case is filed with the bankruptcy court, youâre protected from creditors. Filing bankruptcy triggers an automatic stay – or stop – on all collection actions. This means all phone calls, garnishments, and collection letters have to stop. It even put at least a temporary stop to repossessions, evictions, and foreclosures.
How Does Bankruptcy Work
Bankruptcy is a method to eliminate or at least reduce your debt when bills pile up beyond your ability to repay them. It should be viewed as a last resort to be considered only when all other potential courses of action to get back on track have been exhausted.
Individuals filing for bankruptcy mostly use either Chapter 7 or Chapter 13. The biggest difference between the two is what happens to your property:
- Chapter 7, which is known as liquidation bankruptcy, involves selling some or all of your property to pay off your debts. This is often the choice if you don’t own a home and have a limited income.
- Chapter 13, also known as a reorganization bankruptcy, gives you the chance to keep your property if you successfully complete a court-mandated repayment plan that lasts between three and five years.
Depending on where you live and your marital status, some of your property may be exempt from being sold when you file Chapter 7 because of state-specific and federal exemptions. With exemptions, whether they be your home equity, retirement accounts or even personal possessions such as jewelry, you receive the allowed exemption amounts, and the rest of the proceeds will be used to pay off debts. You can read more about potential exemptions, and check out this chart for a quick rundown on the two types:
- Child support or alimony
- Student loans
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Can I Be Discriminated Against Because Of A Bankruptcy
No. You dont give up any legal rights by filing bankruptcy. You still may vote. You still may own property. No government agency can discriminate against you, or treat you differently, due to your bankruptcy. Private employers cant fire you, or refuse to hire you, due to your bankruptcy. A public utility, such as an electric company, cant cut off or refuse service because you filed for bankruptcy. Your credit applications must be treated the same as other applications for credit.
How Frequently Can Individuals File For Bankruptcy
A person might file a Chapter 7 bankruptcy once every eight years, or six years after filing a Chapter 13 bankruptcy. A person might register a Chapter 13 bankruptcy every couple of years, or four years after a Chapter 7. in a few circumstances a person might register a Chapter 7 and then straight away register a Chapter 13. It is colloquially known as a Chapter 20, and greatest handled by legal counsel.
How Soon Can You File For Chapter 13 After Chapter 7 Bankruptcy
In order to get debts discharged through Chapter 13, you must wait four years after filing a Chapter 7 bankruptcy.
You can file for Chapter 13 before four years if no debts were discharged in the Chapter 7 filing, but if you had debts discharged in Chapter 7 and want to have debts discharged in Chapter 13, you must wait four years.
Chapter 7 Bankruptcy: What It Is And How To File
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Chapter 7 bankruptcy can wipe out many forms of overwhelming debt;under the protection of a federal court. You may have to give up some assets, like an expensive car or jewelry, but the vast majority of filers do not. Chapter 7 bankruptcy is the fastest and most common form of bankruptcy.
Chapter 7 bankruptcy erases most unsecured debts, that is, debts without collateral, like medical bills, credit card debt and personal loans. However, some forms of debt, such as back taxes, court judgments, alimony and child support, and student loans generally arent eligible. Chapter 7 bankruptcy will leave a serious mark on your credit reports for 10 years. During this time youll likely find it harder to get credit. Even so, youll probably see your credit scores start to recover in the months after you file.
Read on to learn about how you can qualify for Chapter 7 bankruptcy, how to file, whether this debt relief option is right for you, and how to rebuild after bankruptcy.
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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.
What Debts Cant Be Discharged In Bankruptcy
Some debts cant be discharged in either a Chapter 7 or Chapter 13 bankruptcy. These include the following things:
- Fines and court ordered restitution,
- Taxes for which no return was filed, taxes for which a fraudulent return was filed, as well as some other taxes,
- Child support, spousal support , and non-support obligations resulting from a divorce or separation,
- Debts due to fraud,
- Debts due to wrongful and harmful acts,
- Loans from your pension plan, and
- Student loans, unless you can show extreme hardship.; It is nearly impossible in West Virginia to show extreme hardship.
You cant discharge credit card charges or other installment contract purchases to a single creditor totaling more than $550 for luxury goods or services you bought within 90 days before you filed bankruptcy. You also cant discharge cash advances totaling more than $825 you got within 70 days before you filed bankruptcy.; Thus you should always quit using credit for at least 90 days prior to filing a bankruptcy.
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Is Bankruptcy Your Last Resort
When youre drowning in debt, filing for bankruptcy may seem like the easy way out. This is especially true if you have lost your job or youre struggling to make ends meet every month. Many people make the hasty decision to file for a Chapter 7 bankruptcy just to get instant relief from all the financial stress and avoid exhausting debt collectors.
It is very important, however, to look into the future after you file for bankruptcy. Will you be able to cover your expenses after your debts are discharged? Or will you still be out of pocket? The reason why you should ask yourself this is because there may be other options to cover your debt payments instead of a bankruptcy filing. For example, you can explore ways on how to make money on weekends or how to make money without a job.
When you file a Chapter 7 bankruptcy, you cannot file again until after 8 years. Yes, thats 8 long years. So if the amount of your debt is not that high, you might want to save that Chapter 7 filing for future use just in case you get into worse circumstances.
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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Spending Before Filing Chapter 7the Look Back Period And Fraud Allegations
Sometimes people pay bills in a way that isnt fair to all of their creditors. And, although rare, some people try to use the bankruptcy system inappropriately by hiding property or running up charge accounts knowing that they intend to discharge the balance.
Your creditors and the bankruptcy trustee will look for tell-tale signs that somethings amiss in your paperwork.
Here are examples of timing issues youll want to consider before you file.