Category: Bankruptcy

Bankruptcy is a very delicate subject for most people. It’s senseless for anyone to feel ashamed to file for chapter 7 or chapter 13 bankruptcy when most of us have also made bad choices at one time or another.

Everyone deserves a 2nd chance in life and filing bankruptcy can offer you exactly that.

Bankruptcy is a legal status for a person or business that can’t pay off unsettled debt. This is something that only a state or federal court can determine.

Most people don’t want to file for bankruptcy and see it as a last resort for options. Bankruptcy will allow an individual to wipe out “most of” or “all of” their debts.

Here are some reason why someone would file for bankruptcy.

1. Stop Foreclosure
2. Prevent Repossession of an Automobile
3. Lower debt
4. Eliminate debt
5. Stop wage garnishment

Before you file get prepared

I’m going to give you some good advice and what you’ll do with it is totally up to you. Before you file, you’ll most likely have to obtain credit counseling within 180 days. You’ll need to receive the credit counseling from an “approved provider” listed on the US courts website.

You’ll need to talk to a lawyer who will help you file and walk you through the entire process. Filing can cost $700-$2500 or even more depending on where you file. Most of the time, your attorney will have information about the credit counseling programs and the list of “approved providers.”

How long will it take to recover?

In most cases bankruptcies will stay on your credit report for 7-10 years, there are many things you could do to start improving your credit after you file.

Chapter 13 Bankruptcies- You might be able to land a conventional loan two years after a Chapter 13 discharge. FHA and VA loans are even more tolerant.

Chapter 7 Bankruptcies- you’re typically looking at a four-year wait for conventional loans and a two-year wait for either FHA or VA financing.

Auto mobile financing is pretty simple to obtain these days but your IR will be very high and your payment won’t be pretty either.

What types of bankruptcies are available?

Most of the time you will only hear of chapter 7 and chapter 13 bankruptcy. Although chapter 7 and chapter 13 are some options available there are four other options as well.

Chapter 9: Chapter 9 may only be applied to municipalities such as cities or towns and allows for their reorganization. This is most likely something you will never hear of again.

Chapter 11: Chapter 11 is the third most common type of bankruptcy filing, with 1,757 filings in 2011. This chapter is almost always used to reorganize businesses but may be used by individuals as well. If you own a business, you might want to consider filing a chapter 11.

Chapter 12: Chapter 12 is used exclusively to adjust the debts of a family farmer or family fisherman.

Chapter 15: Chapter 15 applies to cross-border cases, in which the debtor has assets and debts both in the United States and elsewhere.

I hope this article gave you some understanding of the options that you have and also helps you find the right attorney to help you with your filing.

Misconception #1: YOU LOSE ALL YOUR BELONGINGS IN BANKRUPTCY.

Truth:

Many of the bankruptcy cases that are filed by individuals are known as “no asset” cases. This means that the debtor or debtors preserve all of their belongings. The reason for this is bankruptcy gives you the privilege to keep a certain amount of property in which you can start over with. The belongings that you are able to keep are known as exempt property. Depending on the state you live in will determine what you can keep.

Misconception #2: BANKRUPTCY RUINS YOUR CREDIT FOR 7 TO 10 YEARS.

Truth:

This misconception is unbelievable. There are many cases in which filing for bankruptcy will improve your credit. This is accurate for many debtors, because upon receiving their discharge, they are debt free. Often, their debt to income quota is zero. Once your bankruptcy is over, you can then begin the development of rebuilding your credit. If you are a proactive person, it is important to obtain new credit and to pay all of your necessities on time. If you are doing this for a constant two to three years you can reestablish good credit.

Misconception #3: YOU CANNOT DISCHARGE TAXES IN BANKRUPTCY.

Truth:

Conflicting with the common misconception, typically income taxes can be freed in bankruptcy if you have the following information:

1. The taxes have to be a minimum of three years old

2. The associated return must of been filed a minimum of two years ago

3. Any added appraisal was more than 240 days ago.

4. There was no engaging in fraud or tax evasion from the taxpayer

There are many reasons in which these time periods have the possibility to be extended, do not count on these things alone to determine the discharge-ability of taxes depending on your situation.

Misconception #4: MEDICAL BILLS CANNOT BE DISCHARGED IN BANKRUPTCY.

Truth:

Just like most bills, medical bills can also be discharged in bankruptcy. There are many suspicions in which individuals think otherwise. Wherever this misconception is coming from is false. In fact, one of the main three reasons that an individual will file for bankruptcy is medical bills, alone with job loss and divorce.

Misconception #5: YOU CAN PICK AND CHOOSE WHICH DEBTS TO LIST IN YOUR BANKRUPTCY.

Truth:

False. It is mandatory for all debts to be filed, including debts owed to family and personal friends, business partners, and future debts that you may have. It is not possible for you to eliminate one credit card from the bankruptcy.

Setbacks are common in life. If your financial situation has spiraled out of control it’s wise that you file for bankruptcy.

Paths of Relief

Bankruptcy laws provide you with two paths for relief: chapter 7 and chapter 13.

Chapter 7 is aimed at helping you to cover the debts resulting from personal loans, credit cards, payday loans and medical bills. This chapter is most ideal for people who own less property. This is because your assets are sold, or liquidated in order to pay creditors as much as possible. If there are any debts that remain after the sale of your assets, they are wiped away leaving you with a clean slate.

For you to qualify for chapter 7 your monthly income must be less than the average income in your state. If you earn more than the average income, you have to pass a stringent means test in order to qualify to file chapter 7.

Chapter 13 on the other hand doesn’t erase debts. Here your debts are reorganized into a repayment plan. It’s good to note that while filing chapter 13 bankruptcy your average monthly income is considered. If you earn less than the average income, you have to repay the debts in no more than 36 months.

If you earn an average or above average income you have to make the repayments in 60 months.

Bankruptcy Exemptions

You have the option of using either federal list or state’s list of exemptions. It’s good to note that while you can mix and match the exemptions, you have to stick to one. To make the right choice you need to find an attorney who will help you out. In addition to helping you to make the right choice of exemptions, the bankruptcy lawyer will also help you in filing your bankruptcy petition.

Depending on the number of creditors that you have, bankruptcy forms can be as long as 60 pages which can be too complex for you. Filing for bankruptcy stops any collection activity by your creditors.

The bankruptcy lawyer will also help you in discussing any issues that might come up during the 341 meeting with your creditors. This helps you to be fully prepared and puts you at a better position of answering any questions that the trustees may ask.

Conclusion

This is what you need to know about bankruptcy law. To increase the chances of winning the case ensure that you hire the best lawyer in your area.