Negotiate With Your Lenders
Whatever form of debt you hold, its possible to negotiate with your creditors. You might be able to get a one-month extension on your car payment, have some of your interest-only credit card debt forgiven or obtain a mortgage modification.
I would always advise trying to negotiate with your creditors directly first before just filing for bankruptcy, Tannery said. Because you may be able to gain the result you need without having to use the bankruptcy court.
If Your Recent Income Has Been High
When you file for Chapter 7 bankruptcy, the court will look at your income over the past six months to determine whether you are eligible, using what’s called the “means test.” If your income is too high, you may file only for Chapter 13 bankruptcy, which requires you to repay a portion of your debts.
If your income has dipped recently because of a pay cut or layoff, you can often become eligible for Chapter 7 by simply waiting a few months. Once several months of decreased income are figured into the means test, your average income over the past six months may be low enough to qualify.
For example, assume that your average gross income for the previous six months is $8,000 per month, but that you were just laid off and are now getting $1,500 per month in unemployment. If you wait two months to file, your six-month average gross income will drop from $8,000 to less than $5,900 a month, which will bring you into eligibility for Chapter 7 bankruptcy in most states.
How Chapter 7 Works
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: schedules of assets and liabilities a schedule of current income and expenditures a statement of financial affairs and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . 11 U.S.C. § 521. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling evidence of payment from employers, if any, received 60 days before filing a statement of monthly net income and any anticipated increase in income or expenses after filing and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.
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Filing Bankruptcy In America: Four
Money Fit by DRS Inc. is publishing a four-part series to explain the bankruptcy process in great detail. We intend to create a guide for individuals looking to understand the bankruptcy process so they can make informed decisions on whether this is an alternative to dealing with their debt that they should explore further.
Myth #: Most People Do Not Qualify For Bankruptcy Because Of The Means Test
This is not true. When the new bankruptcy laws passed in 2005, many debtors became frantic. Creditors tried to convince the country that bankruptcy would only apply to a small percentage of poor and destitute people. This was a massive fabrication of the new laws. In reality, the 2005 legislation changed the method in which debtors qualify for bankruptcy under the Means Test, but it did not prevent people from filing.
In fact, bankruptcy filings have actually increased since the new laws were enacted, especially in light of the foreclosure crisis. Dont believe what you hear whether on television, in the paper, or from friends or family members. To learn the truth about the current bankruptcy laws under Chapter 7 and Chapter 13, give our Firm a call.
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What Debt Can Be Erased
Chapter 7 bankruptcy can erase the following common debts:
Personal loans and payday loans
Judgments from credit cards and debt collection agencies
These debts are known as dischargeable debts.
The moment someone files bankruptcy, the automatic stay goes into effect. This temporarily stops anyone from collecting any debts you owe them.
Mail Documents To Your Trustee
The Chapter 7 trustee is an official appointed by the court to oversee your case and liquidate, or sell, nonexempt property for the benefit of your creditors. Not all types of bankruptcy require the involvement of a bankruptcy trustee, but both Chapter 7 and Chapter 13 cases have one.
Pay attention to mail you receive from the trustee after filing your case. The trustee will send you a letter asking you to mail them certain financial documents, like tax returns, pay stubs, and bank statements. If you donât send the trustee the requested documents following the instructions provided in their letter, you may not get a discharge of your debts.
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Bankruptcy Is A Public Record
As well as affecting your credit report, bankruptcy can also affect your personal life. Bankruptcy records are usually a matter of public record which means they can be looked up online. Because of this, bankruptcy can cause difficulties when you apply for a job or if you want to rent an apartment. Your insurance premiums are likely to increase too.
What Happens If I Declare Bankruptcy
When you declare bankruptcy, you will file a petition in federal court. Once your petition for bankruptcy is filed, your creditors will be informed and must stop pursuing any debt you owe. The court will then request certain information from you, including:
- The total amount of debt you owe
- A complete list of all your creditors
- An accounting of your total income
- An accounting of your outgoing expenses
You are permitted to represent yourself in bankruptcy court. You are also allowed to hire a lawyer who can serve as your advocate and help you navigate the complicated process of what happens if you declare bankruptcy. Having your debt discharged or reorganized in bankruptcy court can take a lengthy period of time. Should you get a lawyer, your lawyer can help you understand the relevant timeline in your bankruptcy case.
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Your Lender Wants To Repossess Your Car
Bankruptcy’s automatic stay also puts an immediate stop to any efforts by your lender to repossess your car. In Chapter 13, you can catch up by including back payments in your plan. In both chapters, you might be able to get your car back if the lender repossessed it recently. Talk to a local bankruptcy lawyer. If you’d like to learn more, read Can the Lender Repossess My Car During Chapter 7 Bankruptcy and Car Repossession and Bankruptcy.
If You’re Overwhelmed By Your Debts Bankruptcy Is Just One Option
If you have large debts that you cant repay, are behind in your mortgage payments and in danger of foreclosure, are being harassed by bill collectorsor all of the abovedeclaring bankruptcy might be your answer. Or it might not be.
Bankruptcy can, in some cases, reduce or eliminate your debts, save your home and keep those bill collectors at bay, but it also has serious consequences, including long-term damage to your . That, in turn, can hamper your ability to borrow in the future, raise the rates you pay for insurance, and even make it difficult to get a job.
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You Cannot Discharge Your Student Loan Debt
Unfortunately, it is extremely unlikely that you will be able to discharge student loan debt by filing for bankruptcy. It can be done, but it is rare. In order to be able to get your student loans discharged, you have to prove hardship, Tannery said. And its a pretty broad and vague term.
For example, the one time Tannery recalls someone getting her student loans discharged involved a woman with a bachelors and masters degree who worked as an educator and suffered an accident that left her unable to ever work again. The court ruled that that was the hardship that would allow her to discharge those student loans, Tannery said.
How To File Chapter 7 Bankruptcy
Filing Chapter 7 bankruptcy involves collecting information about yourself and using this information to fill out your bankruptcy forms. Whether you plan on filing now or aren’t sure yet, check out Upsolve’s 10-Step Guide on How to File Bankruptcy for Free to learn more about how to prepare for and file a Chapter 7 bankruptcy case.
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You Will Be Discharged From Bankruptcy
A discharge releases you from the legal obligation to repay the debts you had as of the date you filed for bankruptcy, except for specific types of debts that are excluded by law. These include alimony and child support payments, student loans , court-ordered fines or penalties, and debts arising from fraud.
The timing of your discharge depends on a number of factors, including whether this is your first bankruptcy, and whether you are required to make surplus income payments.
Timing of your discharge from bankruptcy
If this is your first bankruptcy and you are not required to make surplus income payments , you will be eligible for an automatic discharge from bankruptcy in nine months. If your surplus income is higher, your bankruptcy will be extended to 21 months and you will be required to make payments from your surplus income.
Your discharge from bankruptcy will happen automatically if
- the discharge is not opposed by the LIT, a creditor or the Office of the Superintendent of Bankruptcy
- you have attended the mandatory financial counselling sessions and
- this is your first or second bankruptcy.
To ensure that a greater percentage of debts is repaid to creditors, the following standards set out when an automatic discharge will occur.Timing of your discharge from bankruptcy , First Bankruptcy
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Debt That Can’t Be Forgiven
While bankruptcy can eliminate a lot of debt, it can’t wipe the slate completely clean if you have certain types of unforgivable debt. Types of debt that bankruptcy can’t eliminate include:
- Most student loan debt .
- Court-ordered alimony.
- A federal tax lien for taxes owed to the U.S. government.
- Government fines or penalties.
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You Dont Have Any Assets Or An Income Outside Of Social Security Unemployment Or Welfare
Except for certain debts like intentionally unpaid taxes, back child support, or government-guaranteed student loans, creditors cant touch Social Security income, unemployment, or welfare. Even if they sue you, they cant take your money if you dont have any.
Filing bankruptcy in this case would be redundant. If you dont have income creditors can garnish, assets they can seize, or property they can put a lien on, there isnt much they can do to you other than annoy you with phone calls.
If You’re Struggling To Pay Your Bills And Thinking About Filing For Bankruptcy There Are A Few Things You Should Know Before Taking That Big Step
Are bills piling up while you’re out of work and stuck at home because of the COVID-19 pandemic? Are you thinking that filing for bankruptcy might be a good way to fix your financial situation? If so, you’re not alone.
Bankruptcy is a legal process that can help people like you who can’t pay their bills. It allows you to wipe out your debt and get a fresh start. Filing for bankruptcy will also put a halt to foreclosure or legal actions against you, and it stops creditors from calling and demanding payment. This “breathing space” is one of the most desired benefits of filing bankruptcy.
But there are a few things you should know before you take that giant step. Bankruptcy won’t solve all your problems. You’ll need help, and it can be a long process. There are other important considerations, too. So, to help you figure out the best path for you, here are 10 things you should know before filing for bankruptcy.
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Advantages To Chapter 7 Bankruptcy
Chapter 7 bankruptcy has many advantages, which we discuss below. It’s important to keep in mind, however, that Chapter 7 isn’t for everyone. You must qualify by meeting an income test . And for some people, debt is discharged in exchange for giving up valuable nonexempt assets. A bankruptcy trustee sells these assets to pay creditors. For this reason, Chapter 7 is sometimes called a “liquidation” bankruptcy.
Benefits Of Bankruptcy For Debtors
Bankruptcy provides at least two valuable benefits to all debtors: time and space.
The moment a debtor files its petition, an automatic stay is imposed on creditors, which operates like a pause button on any collection efforts, litigation or similar actions. Creditors can ask the court to lift the stay under certain circumstances, but the standard for doing so is often difficult to meet.
The bankruptcy court has broad authority to control all matters involving the debtors estate, including claims that are distantly related to the main bankruptcy case. The debtor may ask the court to pause other lawsuits outside of the bankruptcy case if they affect the estate. By bringing together all those with a stake in the companys assets in one place, a debtor can more efficiently deal with all claims against it.
While the stay is in place, debtors use the bankruptcy process to evaluate their problems and make the necessary changes to succeed after reorganizing. This includes deciding which contracts they want to carry forward and which to abandon.
To avoid a contested process, savvy debtors seek a global settlement with as many stakeholders as possible which is what Purdue is likely trying to do and include sweeteners to sway undecided creditors in favor of the plan.
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Before Doing Anything Else Decide If Filing Bankruptcy Is Right For You
Before jumping in, you need to determine whether filing bankruptcy will help you. Bankruptcy is a powerful debt relief tool that’s helped many people, but you’ll have to decide if it makes sense for your financial situation.
A bankruptcy discharge does not wipe out certain non-dischargeable debts like most student loans, child support obligations, alimony, and recent tax debts. If you have any cosigners, they will not be protected by your personal bankruptcy.
If you have great credit when your Chapter 7 bankruptcy is first filed, your . Most people are able to rebuild their credit and have a better score within a year of getting their bankruptcy discharge.
Anyone can file Chapter 7 bankruptcy without a lawyer. Here is an overview of the steps you’ll need to take to obtain your fresh start.
Drawbacks Of Chapter 7 Bankruptcy
Before you decide to file, there are several drawbacks of Chapter 7 bankruptcy to be aware of.
- You may have liens placed against your property. A lien gives your lender a stake in your property. If the property is sold, the lender can be paid from the earnings.
- You may lose property. Your property may be sold in order to pay creditors.
- Your credit may be damaged. Derogatory public records, including bankruptcies and foreclosures, included in your credit reports have the potential to reflect poorly on your credit and can hurt your ability to qualify for new loans.
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What Is Chapter 7 How Does It Work
In a Chapter 7 bankruptcy, youâll fill out forms about what you earn, spend, own, and owe and submit these forms to the bankruptcy court. Youâll also submit recent tax returns and pay stubs, if youâre employed.
A couple of months later, youâll get a notice in the mail from the court letting you know that the court has granted you a bankruptcy discharge. The vast majority of people who are honest, fully fill out their bankruptcy forms, and complete the required steps get their bankruptcy petition accepted by the court and their eligible debts erased.
Youre Putting Everyday Necessities Onto Credit Cards
Consistently putting groceries or gas on a credit card because you have no available cash is a big red flag that youre on a treadmill of debt. Most people do this because they spend their entire paycheck on debt payments.
This cycle makes your situation worse. You spend $100 on your minimum payment, but you need $100 in groceries, so you charge it to the card you just paid. Your total debt actually goes up from this money trade because of interest.
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