The mere idea of filing bankruptcy can make anyone anxious. However, in certain situations it can be the most beneficial option for your personal financial needs. Although it remains an negative mark on your credit file for a period of up to 10 years, bankruptcy can help ease the burden of huge amount of debt.
There are three distinct kinds of bankruptcy and each is designed to assist individuals who have specific requirements. Learn more about what kind of bankruptcy you could be qualified for. We’ll also assist you in determining whether it’s the best option for you.
What are the various types of bankruptcy?
In general bankruptcy refers to the process of removing any or all of your debts or in some instances you may have to repay it on different terms than your original agreements with your creditors.
It’s a difficult and serious process but it can help you reduce your debts if you estimate that you’re not likely to be able to pay back everything in the next few years.
The two most commonly used for people are Chapter 7 and Chapter 13. Chapter 11 is typically used for business, but can be used for individuals in certain situations. Let’s review some of the basics of bankruptcy and other factors that differentiate them from one another.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a plan for those who meet certain income guidelines but who are unable to pay their creditors. It is necessary to pass a test to be eligible. In lieu of payments the bankruptcy trustee may offer your property for sale to pay off your debts, which includes secured and unsecure loans.
There are some exemptions you can request to stop certain things from being taken away. It all depends on what debts are in default. If you have a mortgage that is heading towards foreclosure, then you may be able delay the process with the process of a Chapter 7 delinquency.
If you’re only in delinquency on non-secured debts, like credit card debt or personal loans then you could apply for an exemption on major items such as your home and vehicle. This way, they won’t be taken away and sold off.
Exemptions that are eligible vary according to states. Most of the time there is a specific amount for your assets that qualify to be exempted. You can keep them as long as they’re within the maximum value. For instance that if your state offers an auto exemption of $3,000 and your car is valued at $2,000, then you can keep it.
Many places permit you to deduct any outstanding loan balance to count toward the exemption. In the example below, if the vehicle is worth $6,000 however, you still have $3,000 on the loan to your car you’re still within the exemption amount.
Chapter 7 bankruptcy is the most efficient method of filing and lasts about three to six months. It’s also the least expensive option for legal costs. However, you should keep in mind that you’ll need to pay attorney’s fees in advance if you select this option.
Chapter 13 Bankruptcy
The Chapter 13 bankruptcy is the preferred option if you earn enough money to qualify for the Chapter 7 bankruptcy. The advantage is that you keep your home, but pay your creditors over a three to five-year period. The repayment plan you choose to follow is contingent on a variety of factors.
All administrative costs and prior loans (like tax liens, alimony and child support) and secured debts should be paid in full during the period of repayment. They must be paid back when you want to retain the property for example your car or house.
The amount you’ll need to pay back your debts unsecured can be very different. It is contingent on how much disposable income you earn and the amount of value you have for any property that is not exempt and the duration of your repayment schedule.
The length of time your plan will last is dependent on the amount you earn, and is based on the income standards in your particular state. For instance, if earn more than the median monthly earnings, you have to pay off your debts for the full period of five years.
If you earn less than that you could be able to cut down your repayment time to as low as 3 years. You can input your financial data in an online Chapter 13 bankruptcy calculator for an estimate of what your monthly payment could be in this scenario.
To be eligible to be eligible for Chapter 13, your debts must be within a predetermined limit. For debt that is unsecured your total cannot exceed $1,149,525 while your secured debt cannot exceed $383,175. However like Chapter 7 bankruptcy, you can include mortgage payments that are past due to keep from foreclosure.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is usually typically associated with businesses. However, it could be a viable option for individuals, particularly when their debts are higher than the Chapter 13 limits. Many of the features of Chapter 11 and Chapter 13 are similar, for instance, protecting secure property from being taken away.
Being required to pay prioritised debts in full and being in a greater income than those who file a Chapter 7 bankruptcy are also common features. However unlike Chapter 13 it is required to make repayment for the entire 5 years in the Chapter 11. There is no way to pay only three years, regardless of the location you live in or how much you earn.
Another reason to choose Chapter 11 is if you are a small-business owner or have real property. Instead of losing your company or income property you can consolidate your debt and make payments while running your business, either as a CEO or landlord.
One disadvantage that you should be aware of when considering one disadvantage to be aware of with a Chapter 11 bankruptcy is that it’s typically the highest-cost option. However you can pay for your legal costs in installments so that you do not have to worry about re-entering debt.
What are the long-term consequences of bankruptcy?
It shouldn’t come as a surprise that filing for bankruptcy can cause your credit score to fall. Based on the other information on your credit report your score could fall between 160 to 220 points.
Those effects linger. The effects last for a long time. Chapter 13 bankruptcy stays on your credit report for seven years. A Chapter 7 bankruptcy remains there for up to 10 years. The negative effects on your credit score however begin to decrease as time passes by.
You’ll likely have difficulty getting credit right away following your bankruptcy. At some point, you’ll get approved for credit and loans but the interest rates will likely to be quite high.
A new mortgage is likely to be unattainable for a minimum of five or seven years from the moment you declare bankruptcy. Furthermore, any company conducting an audit of credit will be able to see all of these information in your credit report.
Government agencies aren’t legally able to discriminate against you based on your bankruptcy, however there’s no specific policy for privately-owned businesses. It could be particularly detrimental in the event that your job that you’re applying to deals with money or any other type of financial information. Whatever your job however, you won’t be dismissed from your current employer due to bankruptcy.
Should I file for bankruptcy?
There’s no right solution to this issue. It’s something you’ll have to make your own decision. However there are some ways to ensure that you’re making the best choice possible. Begin by finding a certified credit counselor to determine your specific situation. They’ll assist you in reviewing the guidelines for every kind of bankruptcy and determine if you’re qualified.
At first glance the idea of filing for bankruptcy might seem like a good option to pay off your debts and get on with your life. But, it’s not as easy as filling out the form. The consequences of bankruptcy can stay with you for a long time.
When you begin the assessment process of deciding if bankruptcy is the best option for you, there are many aspects to take into consideration. This article will help you start thinking about your circumstances. It will also direct you to more detailed resources if you require these.
Is your current status temporary or permanent?
You should also consider the future you expect to earn and compare your expected earnings with the amount of debt. If you’re not sure how you’ll ever pay off the obligation, then filing for bankruptcy could be a viable option. Be aware of the different types of debts you owe. Tax payments as well as student loan debt and the liens on your mortgage or car won’t be discharged if you declare bankruptcy.
Once you’ve figured out what particular options are available then it’s time to talk to an attorney in bankruptcy. You’re certainly able to handle the case yourself however, the process is difficult. It’s generally best to have a professional handle the work on for you. Make sure you interview a number of lawyers to obtain multiple opinions and costs to compare.
Evaluate Your Situation
Even if your bankruptcy is in the process it’s a good idea to take a moment to think about how you came to this point. Was it because of an unintentional financial crisis or a prolonged period of unemployment? If so then you know you’re in good shape with a better and more prosperous future ahead of yourself with the promise of steady income to pay for your bills.
If you’re on the brink of bankruptcy because of your reckless spending, you need to examine your spending habits. If you don’t, it’s easy to find yourself in the same position a few years later. Take advantage of bankruptcy to get a chance to start over with a clean financial record.
Why should you consider bankruptcy?
If you’re thinking of filing for bankruptcy you’re likely to be overwhelmed by financial obligations, including debt. You’re likely to have a difficult to pay your bills every month and might be worried about whether you’ll be able to pay off a portion of the outstanding balances.
If you’ve exhausted the other options available to you, like working overtime or cutting back on unnecessary expenses It could be the right time to think about the possibility of declaring bankruptcy. The signs that you may be in the right place include:
- Increased interest rates because of late payments or bad credit
- Using credit cards for daily purchases without paying off the balance each month
- Already downsized things like house, car, and other assets
- Working multiple shifts or jobs
- Paying off debt with retirement funds
- Wages are being garnished
If any of these scenarios apply to you then you must pursue your bankruptcy research. If not, you can look for alternative ways to boost your finances. For instance, you can modify your budget if there are areas that you can easily reduce your spending.
You could also try negotiations with your lender, especially when you’re experiencing one setback in the short term. Most lenders will collaborate with you. They’d prefer to set up an alternative payment plan rather than to have the debt wiped out or paid through bankruptcy.
Bankruptcy Alternatives
If you’re considering filing bankruptcy, it requires careful planning. Because of the long-term financial and legal implications of bankruptcy, there’s a lot of rules to be adhered to before you can file.
For instance, it’s important to prove to your bankruptcy court you’ve received credit counseling and have thought about alternatives to reduce debt, such as debt settlement or debt consolidation. The bankruptcy process is governed by the federal court system, and it strongly suggests hiring an attorney prior to attempting to make an application for bankruptcy.
If you need assistance in to find a bankruptcy lawyer, get in touch with the American Bar Association. They provide free legal advice and you may be eligible for legal assistance at no cost when you’re in financial difficulty and cannot afford an attorney.
Creating a Checklist to Avoid Dismissal
If you are considering filing for bankruptcy, there are many important questions you need to ask yourself. There are several important steps you must follow. The first step is to consider whether you really require filing for bankruptcy.
If you don’t, you won’t get approved in the end. Also, you must calculate your income, expenses and assets, locate an attorney who is trustworthy and then select the credit counseling program.
It’s beneficial to be methodical and use an organized checklist. Inability to follow the correct steps and seek out the appropriate credit counseling can result in more money wasted and the possibility of a bankruptcy discharge which means they have to dismiss the case.
Reasons to Delay Bankruptcy
If bankruptcy isn’t the best option for you, there might be situations in which it’s best to hold off the process so that you can reap the maximum benefits. First, if an income that was high in the past six months, but doesn’t apply to your circumstances, you may be better off waiting.
This is because the bankruptcy court will weigh your income for the last six months to determine if you are eligible to file Chapter 7 bankruptcy. If you earned a good monthly income in the past, but were cut off in the last few months, this means that the that the test won’t accurately reflect your current situation.
Another reason to put off filing bankruptcy is if you’re anticipating a debt that is going to be major. New debt cannot be discharged until you file for bankruptcy.
For instance when you’re scheduled to undergo an extensive medical procedure You might want to wait until the procedure is completed before adding the medical expenses in the bankruptcy plan. Consult an expert to determine the conditions for eligibility. The luxury items you pay for prior to the bankruptcy filing for instance, most likely will not be considered an element of the debt relief.
Changes in Bankruptcy Law
Before beginning it’s important to take note of the changes that took effective in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). While the changes won’t affect the majority of people who apply to file bankruptcy, they could impact others.
Federal bankruptcy law requires mandatory counseling on credit to ensure that you are fully aware of the implications of declaring bankruptcy. The law also imposes higher eligibility standards for Chapter 7 bankruptcies. To be eligible for Chapter 13 bankruptcy filings, the law requires tax returns and evidence of income.
A well-informed decision starts with knowing the bankruptcy laws and the bankruptcy process and what’s changed. It is essential to understand these changes prior to making any final decision.
Filing under Chapter 7 or Chapter 13
Understanding the process of bankruptcy means knowing the process and laws pertaining to Chapters 7 & 13 of the Bankruptcy Code. Based on the specifics of your particular situation you may be able to file for Chapter 7 or Chapter 13. Which option you choose will have a lot to depend on your income and the assets you’d like to keep.
Your debts could be settled fast or spread over a long time. It is helpful to study up on the in-depth frequently asked questions pertaining to the various options.
How to calculate Chapter 7 Means
To have all your unsecure debts wiped away through Chapter 7 bankruptcy, you must meet the Chapter 7 means test. With your personal data, or an initial estimate using an online calculator, you will help you determine the amount you qualify for. When you file for bankruptcy, you must complete the appropriate form that requires you to input your income, expenses information, and other data that you get from the Census Bureau and IRS.
If you don’t meet the income required to apply for Chapter 7 bankruptcy, you may still be able to apply for Chapter 13. Chapter 13 Chapter 13 will settle many of your debts once you have completed a three – to five-year repayment plan.
Qualifying and Qualifying Debts
Your debts are eligible for bankruptcy relief if you can prove that you cannot pay them. However, the amount you qualify for depends on the situation you are in and the chapter you are declaring bankruptcy under. Debts can be secured or unsecure. Secured debts include mortgages automobiles, and debts that are related to the property you’re paying for.
Credit card debt is considered unsecure. It includes collections, bills judgments, and loans that are unsecured. It is important to determine which debts are eligible for bankruptcy. But, it’s also crucial to know if your situation qualifies you for this important step. To be sure, a thorough financial analysis is required. Start by learning more about the types of debt that are eligible.
Defaulting on a Student Loan
If you’ve fallen behind on your student loan, you have a variety of alternatives available to you. One of them is bankruptcy however if your intention is to get an unpaid student loan dismissed under Chapter 7 this could be extremely difficult.
However, taking steps as soon as you can could help avoid garnishing your wages. Knowing your options will aid you in making the right option before things get difficult. In Chapter 13, your defaulted loan may be combined with your other debts. This will provide you with an improved payment plan or a short-term relief from having to pay.
If you’re a holder of an federal student loan, look into the repayment options particularly if are in financial straits. If not, you can read on to learn how you can get yourself from the debt of your student loan.
What assets you can keep during bankruptcy?
Depending on the method you use to declare bankruptcy, you can choose a few assets that you can keep. There are different exemptions for each state and in some states, you can pick between federal and state bankruptcy exemptions.
If you are in need of having debts wiped out or are unemployed and are unable to pay for an installment plan, a portion of your assets could be lost. In the majority of cases those who file for bankruptcy are able to keep their homes, cars and a large portion of what they own, while they pay off their debts with an amended plan. It is all dependent on your particular situation and the method you choose to declare bankruptcy.
Get a free credit evaluation before you file bankruptcy
A bankruptcy can impact your credit for up to 10 years. It should be considered as a last resort option if every other option has failed. A lot of people file for bankruptcy when it is not necessary. A credit expert can help you repair your credit and work with creditors in a way that that you are not forced to file for bankruptcy. Before filing bankruptcy, you should consider consulting with a credit professional You can receive free credit consultations with a reputable credit repair firm.
