What Happens After Bankruptcy
Once you legally file for bankruptcy, your creditors should no longer phone you or sue you and any existing garnishees are lifted. An appointed Licensed Insolvency Trustee will distribute money to your creditors from your non-exempt assets and surplus income. The bankruptcy process typically lasts between 9 and 21 months.
Where Will I Live If I Lose My Home Through Bankruptcy
Stop worrying and asking, Will I lose my house if I file bankruptcy? Even if you do, all hope is not lost! You can still have a new home even after bankruptcy.
Some programs are available to help you on your road to recovery. State governments and nonprofits have home-buying assistance programs that you can tap into. These include the following:
- Federal Housing Administration loans
- Veteran Affairs loans
- United States Department of Agriculture loans
- State housing finance agencies
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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When To Consider Debt Settlement Or Bankruptcy
If your monthly debt payments, excluding mortgage or rent, exceed 20% of your income, you have a debt problem that requires action. The seriousness of the problem, and your ability and determination to overcome it, will determine whether a debt settlement plan or bankruptcy is the better option.
Here are some scenarios in which debt settlement may provide the better path out of debt:
- Youre able and willing to negotiate with creditors or debt collectors on a settlement plan that you can afford and stick to.
- Your creditors will agree to greatly reduce your debt burden in exchange for your commitment to make a lump-sum payment.
- Your income is stable enough that you can continue to pay your mortgage or rent and other essential bills in addition to the payments required under a debt settlement, while still saving some money for emergency expenses.
Here are some scenarios in which bankruptcy is the better option:
Its important to remember that these are general guidelines, and anyone in serious debt who is weighing the pros and cons of debt settlement or bankruptcy is recommended to consult with a nonprofit credit counselor. Counselors from National Foundation for Credit Counseling – member agencies such as InCharge Debt Solutions can help you evaluate your current financial situation and the various debt relief options that may be available to you.
Tax Debt: Bankruptcy And The Automatic Stay
Most IRS collections start with a notice of past-due taxes. Then, every few months, the IRS sends another letter. Each is slightly more threatening than the last. Eventually, these letters become legal notices. They also sometimes involve filing a lien, seizing a bank account, or garnishing wages. The automatic stay acts as a pause button. It prevents creditors from contacting you to collect their debts. As soon as you file your voluntary petition, the automatic stay usually takes effect. When that happens, IRS agents can’t even send you a letter about your back taxes. They are forbidden from trying to collect the debt.
The automatic stay extends to property as well. Although most of your personal property is exempt â or protected â during Chapter 7, the IRS and other debt collectors can’t touch any of the more valuable assets you happen to own.
An automatic stay is a powerful tool for protecting individuals. No matter what stage IRS collection efforts are in, the automatic stay stops them cold. With few exceptions, the stay applies to all forms of communication between debtors and creditors. Creditors who violate the stay can face serious consequences. And, although the stay prevents creditors from contacting you, it does not prevent you from beginning conversations with them. This puts you in control of negotiations with your creditors during bankruptcy.
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You Can’t 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 isn’t unsecured, you’ll be able to wipe out the debt, but the creditor will be entitled to the property securing the obligation. Learn more about secured property.
How Long Does A Bankruptcy Stay On Your Credit Report
Unfortunately, when you file for bankruptcy, it damages your credit severely. The notation that you filed for bankruptcy and your debts were discharged by the courts stays on your credit report for seven to ten years!
You may also have to sell personal assets like artwork, jewelry, and real estate to liquidate the assets to pay off some of your debt.
A poor credit rating and bankruptcy can affect your ability to get financing, buy a home, acquire insurance, and even get a job with some companies.
Ten years is a long time to suffer the consequences of poor financial decisions and mountains of debt. If there is any other way to handle your overwhelming financial situation, try and find one.
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Is Bankruptcy Right For You
Before you start looking for Licensed Insolvency Trustees in Ontario, its a good idea to make sure that bankruptcy is your best option. Bankruptcy will have a significant negative impact on your credit. It will also become a public record.
If you can avoid bankruptcy, then its in your best interest to do so. Every debt solution has its benefits and drawbacks, so the right option depends on your financial situation.
Make sure to consider all the below alternatives to bankruptcy before you contact a trustee:
It can be helpful to talk to a trained professional who can assess your situation and offer an unbiased opinion on your best option to start your debt-free journey. Debt.ca can connect you with a trained debt relief specialist for a free initial consultation. Whether you need a credit counselling session or more information on bankruptcy, they can help you evaluate your debts, credit report and score, and budget to determine the optimal solution for your unique financial situation. A fresh start is a phone call away.
What Happens If You Declare Bankruptcy
If you declare bankruptcy, creditors have to stop any effort to collect money from you, at least temporarily. Most creditors cant write, call or sue you after youve filed. But even if you declare bankruptcy, the courts can require you to pay back certain debts. Each bankruptcy case is unique, and only a court can decide the details of your own bankruptcy.
Lets talk for a moment about what bankruptcy does and doesnt cover:
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How Do Student Loans Discharge In Bankruptcy
What can you file bankruptcy on when it comes to student loans? Well, discharging student loans in bankruptcy is not impossible, but its rare.
Under current law, youll need to pass the Brunner test by showing that your student debt makes it impossible to maintain a minimum standard of living, and that your finances arent going to change soon. You also have to show youve made a good faith effort to keep up with your student loan bills.
In fact, consumer protection attorney Don Petersen said, Some debts are dischargeable in Chapter 7 as well as Chapter 13, but only if the debtor files an adversary proceeding, which is a sort of lawsuit within a lawsuit, challenging whether a certain liability can be discharged.
In many student loan cases, switching to an income-driven repayment plan or applying for deferment or forbearance is a better option. Filing for bankruptcy can be a long and expensive process with no guarantee of success. Plus, it damages your credit for years.
The Things That Happen Immediately After Filing Bankruptcy
As soon as you file your Chapter 7 bankruptcy, you are given a case number and a bankruptcy trustee is assigned to your case. The bankruptcy trustee will oversee your bankruptcy filing, will review your bankruptcy forms, and may ask for additional documents to verify your information. The trustee will also conduct the meeting of creditors.
Protection from your creditors begins immediately after filing for Chapter 7 or Chapter 13 bankruptcy. This is called the automatic stay. Once you file and the automatic stay takes effect, your creditors are not allowed to take collection action against you.
After you file for bankruptcy protection, your creditors can’t call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt. Wage garnishments must also stop immediately after filing for personal bankruptcy.
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Downsides To Keeping Your House When Filing For Bankruptcy
You may desperately want to keep your house, even if youre so deep in debt youre considering filing bankruptcy. Thats understandable it not only has an emotional attachment, but could some day be an asset, even if youre behind on payments now.
That said, there are some financial downsides to hanging on to your house through a bankruptcy proceeding.
If you file for Chapter 13 bankruptcy, you have to continue making your monthly mortgage payments, as well as pay what you were behind on. This can be difficult, even if the payment plan that you, the court and your lenders agree to, seems to be doable.
Almost two-thirds of Chapter 13 bankruptcies fail. Its tough to keep to a payment plan over three to five years, even though modifications are allowed. Those involve going back to court and explaining why you need one. Through it all, you have to keep current on your mortgage payments, as well as all the other payments agreed to in the plan.
If you file for Chapter 7 and keep your house, you must make the monthly payments. The only hope for a modification, is the bank itself.
Bankruptcy, obviously, is complicated, and if youre worried about keeping your house, its even more so. If youre asking, Should I file for bankruptcy? your first move should be to talk to a credit counselor.
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When Is Your Property Exempt
Will I lose my house if I file for bankruptcy, you ask? A bankruptcy trustee will not sell your property if its equity is less than or equal to the homestead exemption. The federal homestead bankruptcy exemption protects your house equity value of up to $25,150. The exemptions could be higher in some states. Lets take a look at the three most populous states in the country:
California has two systems to use in the homestead exemption. In System 1, the exemptions are as follow:
- $75,000 for single homeowners
- $100,000 if you live with family members
- $175,000 if youre senior or with disability
- $175,000 if youre aged 55 above, single and with low income
In System 2, the exemption is up to $29,275. As to which system will be more applicable to you depends on what you want to protect.
Texas is more generous, with unlimited homestead exemption for the following conditions:
- 10 acres of residence in a city, town, or village
- Up to 100 acres in the country
- Up to 200 acres for families
You can choose to liquidate your house, and the proceeds will be exempt for the next six months.
Another generous homestead exemption is in Florida. If your home is not more than half an acre in a municipality or within 160 acres in other areas, and you own it for at least 1,215 days, you have an unlimited exemption. Otherwise, youre limited to the federal homestead exemption. If you file under Chapter 13, youll pay the nonexempt equity amount in your repayment plan.
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Q2 Will The Trustee Immediately Sell My House
If you have significant nonexempt home equity you cant protect, the trustee will sell your property, following the usual real estate selling process. The trustee doesnt need to rush the sale because a quick sale would usually result in lesser value for your home, which is not going to benefit you.
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.
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The Benefits And Drawbacks Of Filing For Bankruptcy
Bankruptcy may be a viable option when your debt surpasses your assets and capacity to repay your creditors. There are many benefits and drawbacks to filing for bankruptcy debt relief. The following are some of the benefits of filing for bankruptcy:
- A fresh start that may assist you in building a secure financial future
- The opportunity to keep a large portion, if not all, of your personal belongings and assets
- All debt collection efforts by your creditors will be forced to stop.
In addition to ending harassing phone calls and other debt collection tactics, filing for bankruptcy relief has certain drawbacks that you should be aware of. The following are some of the disadvantages of filing for bankruptcy:
- Bankruptcy will remain on your credit report for 7 to 10 years.
- When you can finally get financing after filing for bankruptcy, you may face higher interest rates.
- You may be required to attend court-ordered credit counselling.
- Depending on the kind of bankruptcy you filed, you wont be able to utilize bankruptcy to discharge excessive debt for at least four to eight years.
Each persons or companys debt burden is unique, requiring thorough examination and a careful debt reduction strategy. Your lawyer can help you develop a plan to restructure, decrease, or eliminate your debt by taking a clear, objective, and thorough look at your financial position.
Does Your Credit Score Go Up After Chapter 7 Discharge
Your credit scores may improve when your bankruptcy is removed from your credit report, but you’ll need to request a new credit score after its removal in order to see any impact. Credit scores are not included in credit reports. Rather, scores reflect what is in your credit report at the time the score is calculated.
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How Does Bankruptcy Work
Both businesses and individuals have the right to file for bankruptcy, and there are a few different options within the umbrella of protection. According to Debt.org, In 2020, bankruptcy filers owed $86 billion and had assets of $56 billion. Most of those assets were real estate holdings, whose value is debatable.
Essentially what happens when you file for bankruptcy in the courts puts a hold on all your debts, and creditors cannot continue attempting to collect on them until the matter is resolved.
A court-appointed representative works with the person in debt and evaluates their income and liabilities to determine if bankruptcy is feasible and how to proceed.
The court may discharge the debts . Or the court may decide that the person does have the means to pay off their debt and may assist in working out a payment plan.
The process includes compiling and reviewing your financial records. The court also requires that you seek the help of a credit counselor before filing for bankruptcy. You must use an approved credit counseling agency when taking this step. Then if you have exhausted all other avenues of financial help, you can file a petition for bankruptcy with the court. Once the courts have accepted your bankruptcy, your court-appointed trustee will set up meetings between you and your creditors to work out the terms of repayment and allow the creditors to ask questions. The creditors may or may not attend, but you are required by law to be there.