What Is Bankruptcy And How Does It Work
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When you’re drowning in debt with no end in sight, you may start wondering if you should file for bankruptcy. There are both benefits and drawbacks to taking this drastic step, so it’s important to know what you’re signing up for. Here, we’ll discuss how bankruptcies work and help you decide if it’s the right route for you to take.
My Father Would Roll Over In His Grave
Often when we are in a conversation with someone at Bromwich+Smith, people have a huge burden of guilt around what their parents would think of them. Your parents who love you and want whats best for you, would be terribly disappointed if would look back at their memory and think they would judge you poorly and say that you dont deserve to restructure. It is an unfortunate place and your father would roll over in his grave because he would be heart broken for you. When your child gets into situations where they require the assistance of others, parents are pleased that they are willing to use the resources in the community to help lift them up. Parents are appreciative that there are resources to help their children and would take great pride in their children knowing when to reach out for help and who is best suited to help them. It is a hand up not a handout and its part of the fabric of the community. Once you are uplifted, you can then be a greater contributor to the community.
What Can You Do If You Can’t Find A Licensed Insolvency Trustee
If you are unable to get an LIT to accept your file, or if you cannot afford to hire an LIT, the OSB’s Bankruptcy Assistance Program may be able to help, provided that you:
- have contacted at least two LITs and tried to obtain their services
- are not, and have not recently been, involved in commercial activities
- are not required to make surplus income payments and
- are not in jail
A creditor is harassing me daily. What should I do?
Although the regulations differ slightly across Canada, there are limits on what creditors and collection agencies are allowed to do. For example, they cannot make telephone calls of such a nature or frequency that they amount to harassment of you or your family. In addition, there are certain times when they are not allowed to call.
Tips for dealing with collection agencies If you feel you are being harassed, contact either an LIT or a qualified and experienced credit counsellor. They can help you by serving as an intermediary between you and your creditor.
and we will send you some information and a list of LITs who participate in the program.
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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.
An Option When Chapter 13 Is Unavailable
Bankruptcy law provides individual debtors with two choices: a chapter 7 debt liquidation or a chapter 13 debt repayment plan. Some people are required to file under chapter 13 rather than chapter 7, and other people might find chapter 13 gives them a better chance to avoid foreclosure or repossession. But not everyone is eligible to file under chapter 13. Only individuals with regular income can take advantage of chapter 13, and the Bankruptcy Court will not confirm a chapter 13 plan unless the debtor filing the plan has income available for plan payments after paying his or her monthly expenses. Individuals who dont have regular income and those who lack the income to make ends meet each month must generally file under chapter 7 rather than chapter 13.
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Here’s How Bankruptcies Impact Your Credit Score
While bankruptcies on your credit report will always get factored into your credit score for as long as they are on there, the impact on your score lessens with each year that passes. So, you may see a dramatic drop in your score in the first month immediately following your bankruptcy filing, but by the end of the first year it could have less weight, and certainly less in later years compared to year one.
Your own credit profile will also play a part in how much your credit score is affected when you declare bankruptcy. Similar to how having a higher credit score can ding your more points if you miss a credit card payment, so, too, is the case if you file for bankruptcy. According to FICO, someone with good credit may experience a bigger drop in their score when a bankruptcy appears on their report than someone with an already poor credit score.
Estimates we found online from places like Debt.org show how people with different credit scores would be impacted by a bankruptcy filing. Someone with a credit score of 780 or above would be dinged between 200 and 240 points, while someone with a 680 score would lose 130 to 150 points.
Whatever the case, no one really benefits from filing for bankruptcy. It’s an option of last resort that sometimes even those with good credit find themselves making.
When Should I Declare Bankruptcy
You might consider filing for bankruptcy when your debts are such that you see no reasonable way to keep up with your payments. The purpose of bankruptcy is to give people a chance either to wipe out some of their financial obligations and start over with a clean slate, or to repay those obligations in a more affordable fashion.
However, to be clear, bankruptcy is not an option to consider if your debt is fairly new, or if you’re going through a temporary financial crisis that’s likely to improve . There are consequences associated with filing for bankruptcy, and it’s most certainly not a “get out of jail free” card. So you should really consider bankruptcy only as a last resort if you’ve tried paying off your debts but keep digging yourself deeper into a hole.
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Contact Attorney Joseph P Doyle For A Free Review
It is important to contact an attorney to begin fighting your debt. We know that your personal finances are important to you and we can provide you with compassionate legal assistance. Our firm knows that handling debt and filing for bankruptcy sometimes means that you cannot stop until you obtain a successful result. We know to help you achieve the best outcome available.
Do My Debts Qualify For Bankruptcy
Not all debts qualify for bankruptcy. Debts that cant be wiped out are child support, alimony, some types of taxes, debts to government agencies, debts for personal injury caused by driving while intoxicated and any court fines or penalties.
Debts that can be wiped out in Chapter 7 bankruptcy include credit card debt, medical bills, personal loans, lawsuit judgments and obligations from leases or contracts. Chapter 13 bankruptcy wipes out those debts, plus debts from a divorce , debts for loans from a retirement plan. Technically, student loans can be discharged if you prove undue hardship, however, this is often a difficult task.
There are some people who are considered judgment proof because everything they have is exempt under state law. People that are judgment proof may not need to file bankruptcy because creditors cant touch their assets if their source of income is from social security, pension plans, 401 retirement savings, disability benefits, veterans benefits, alimony or support payments.
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Bankruptcy Comes From Unavoidable Circumstances
At Joseph P. Doyle, our Chicagobankruptcy lawyer, strongly believes you can fix your financial situation with our legal assistance. Bankruptcy is a solution that caneliminate a large portion of one’s debt, no matter what the cause. Below, our firm has explained the most common causes of bankruptcy in more detail.
Every day,thousands file for bankruptcy to get out of a serious debt problem they are facing. This is the result of a serious issue that is affecting bank individual’s bank accounts and lives. This is not just a circumstance that occurs without cause. It comes from an unavoidable circumstance or as a consequence of an action. Whatever the reason, bankruptcy, is the primary go-to solution for many whose financial states have gone out of control. There many causes of bankruptcy, but they can all lead to the samesolution.
The common causes of bankruptcy include:
- Expensive Medical Bills caused by a disability or illness
- Poor Financial Management related tostudent loans, purchasing acar orhome, etc.
- Reduced income or job loss
- Unexpected emergencies, such as a car breaking down or catastrophic damage to your property
If an unforeseen tragedy has taken place and caused your financial circumstance to become negative, it is important to understand what the initial cause was so that it can be effectively solved.
To learn more about how to recover from severe debt, call to discuss your options.
Filling Out Bankruptcy Paperwork
Even if the debtor chooses the correct chapter, pitfalls abound in the paperwork phase of bankruptcy.
- Failing to file required documents. Bankruptcy is form-driven. You’ll have to complete a lengthy federal packet, and, in some cases, your court will have local forms, as well. Many self-represented bankruptcy debtors don’t file all of the required bankruptcy documents, which, if not remedied, will result in a dismissal of the case. You can find information on the forms you’ll need, filing fees, and more in our Filing for Bankruptcy: Getting Started section.
- Failing to protect property.You don’t lose everything in bankruptcy. Property exemptions play a vital role in protecting property in both Chapter 7 and Chapter 13 bankruptcy. But, many pro se filers don’t list the proper exemption to keep an item of property, and, as a result, risk losing it. If you stand to lose valuable property or property you care about , a visit to an attorney might be well worth the money.
- Failing to take required education courses. In Chapter 7 and Chapter 13 bankruptcy filers must receive from an approved provider before filing for bankruptcy, and complete a financial management course before getting a discharge. Many pro se debtors, confused about these requirements, fail to file the proper certificate, which can result in a dismissal of the case.
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Your Interest Rates Have Already Gone Up Due To Missed Payments
Its hard enough to dig yourself out of debt when its at a reasonable interest rate. But if youve missed a payment or two, many lenders, especially credit card companies, will jack up your interest rate to 30% or more. Once the rate is that high, most of your payment each month is going toward interest, and very little goes toward principal.
The interest rate hike also increases your monthly payment, which you may already have a hard time paying. If you have unpayable debt at high interest rates, and you arent able to negotiate lower rates with the lender, bankruptcy may be a viable option.
Talk To A Financial Coach
You dont have to walk this alone. Read that again: You dont have to walk this alone. Get with a financial coach and talk about your situation. They arent here to judgetheyre here to help.
A financial coach can help you figure out a personalized plan of action for your specific situation. And yes, talking about money can be terrifying, but if you declare bankruptcy, your financial privacy will be out the window immediately. Opening up to a trustworthy financial coach now can help you avoid having to open up to a whole courtroom of people in bankruptcy.
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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.
Will Bankruptcy Actually Benefit You
Qualifying for bankruptcy is a pretty stringent process. If you have a regular income, you may be required to file Chapter 13 bankruptcy, in which you set up a payment plan over three or five years. Youll use most of your disposable income to pay debts, and the court is very strict on what it considers disposable income. It will allot you money for necessities like food, clothing, transportation, medical expenses, and utilities and allow you to pay secured debts like your car loan or mortgage in full. All your other money will be sent to your creditors.
It makes sense to figure out a debt payment schedule before pursuing this option. For example, say you bring home $2,000 per month, have a $1,000 mortgage, and are allowed $400 in other living expenses. That leaves you $600 per month to pay off debts. If youre on the three-year plan, you could pay $21,600 in debt. If youre on the five-year plan, you could pay $36,000 in debt. If you have significantly less debt than either number, you probably wont benefit from bankruptcy. In this case, negotiating with your lenders directly could achieve the same or better results.
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Is Your Situation Temporary
Realistically consider whether or not your financial problems are temporary. For instance, if youve lost your job, will you qualify for unemployment benefits? How good are your prospects for getting another job?
When you file for bankruptcy, the court looks not only at your current income but also at your income over the past six months or more. If youre currently having a financial problem, but youve historically paid your bills on time, consider waiting a few months to see if you can improve your situation.
Saving Your Credit Score Is Only One Reason
An end to collection hell: Nosals study found that once people fell seriously behind on their debt with at least one account 120 days overdue, for example their financial troubles tended to get worse. Balances in collections and the percentage of people with court judgments grew.
By contrast, people who file for bankruptcy benefit from its automatic stay, which halts almost all collection efforts, including lawsuits and wage garnishment. If the underlying debt is erased, the lawsuits and garnishment end.
Freedom from certain debts: Chapter 7 bankruptcy wipes out many kinds of debt, including:
Civil judgments .
Some older tax debts.
Some debts, including child support and recent tax debt, cant be erased in bankruptcy. Student loan debt can be, but its very rare. But if your most troublesome debt cant be discharged, erasing other debts could give you the room you need to repay what remains.
Better access to credit: It can be difficult to get credit right after a bankruptcy. But Nosals study shows people who have completed bankruptcy are more likely to be granted new credit lines within 18 months than are people who fell 120 days or more overdue at the same time but didnt file.
Your credit limits after bankruptcy are likely to be low, however, and your access to credit like your credit scores wont recover completely until a Chapter 7 bankruptcy drops off your credit reports after 10 years.
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How Declaring Bankruptcy Can Help
Typically those who file for bankruptcy really do need it. Often the filer is already in a fragile economic position with large amounts of credit card debt when they are suddenly stuck with a bout of hard luck such as a loss of job, injury, divorce, or uninsured medical expenses that then result in mounting penalties and thus an unpayable amount of debt.
Bankruptcy law was designed to help people who need assistance to make a clean and quick break from the debt. In a few months it can wipe out unsecured debt such as credit and medical debts.
Demographics Of Bankruptcy Filers
Over the coming five years, bankruptcy filings increased sharply, mostly because they were starting literally near zero in some districts. From the end of 2005, Money Fit by DRS began providing the credit counseling and debtor education required by BAPCPA, and we also began surveying our bankruptcy clients to see why they were filing.
Based on these surveys and on the budget counseling we provided to those going into bankruptcy, we quickly understood the fallacy of the 2005 laws premise. Consumers were not trying to take advantage of the bankruptcy law to get out of their debts. Neither were consumers suffering through bankruptcy because of poor medical insurance and overwhelming medical debts.
Our internal data shows that unemployment causes most bankruptcies and was the primary driver of the increase in filings that stemmed from the Great Recession of 2008-09.
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