What Do You Need To File For Bankruptcy – If your debts have become unmanageable or you are facing foreclosure of your home, you may be thinking about filing for bankruptcy. While bankruptcy may be the only way out for some people, it also has serious consequences that are worth considering before making any decisions. For example, bankruptcy will remain on your credit report for seven or 10 years, depending on the type of bankruptcy. This can make it difficult to get a credit card, car loan, or mortgage in the future. It could also mean higher insurance rates and even affect your ability to find a job or rent an apartment. This article explains how bankruptcy works and also offers some alternatives to bankruptcy.
Bankruptcy is generally considered a last resort for people who are deeply in debt and see no way to pay their bills. Before filing for bankruptcy, there are alternatives worth exploring. They are less expensive than bankruptcy and can do less damage to your credit record.
What Do You Need To File For Bankruptcy
For example, find out if your creditors are willing to negotiate. Rather than waiting for a bankruptcy settlement and risking nothing, some creditors will agree to accept reduced payments for a longer period of time.
What Should You Do Financially To Get Ready To File For Bankruptcy?
In the case of a home loan, call your loan lender to see what options may be available to you. Some lenders offer concessions (deferred payments for a period of time), repayment plans (such as smaller payments over a longer period) or loan modification programs (which could, for example, lower the interest rate for the rest of the loan).
Even the Revenue Agency is often willing to negotiate. If you owe taxes, you may be eligible for a compromise offer, in which the IRS will agree to accept a lower amount. The IRS also offers payment plans, allowing eligible taxpayers to pay what they owe over time.
If you have decided to file for bankruptcy, the first step should usually be to consult a lawyer. While it is possible to file without one, “it is highly recommended that you seek the advice of a qualified attorney because bankruptcy has long-term financial and legal outcomes,” notes the Administrative Office of US Courts on its website. (Bankruptcy is governed by federal law and cases are handled by federal bankruptcy courts, although some rules differ from state to state.)
Before submitting your application, you will be required to attend a counseling session with a credit counseling organization approved by the US Department of Justice Trustee Program. The counselor should evaluate your personal financial situation, describe alternatives to bankruptcy, and help you come up with a budget plan. The consultation is free if you cannot afford to pay; otherwise it should cost about $ 50, according to the Federal Trade Commission.
What You’ll Pay When You File For Bankruptcy
If you still wish to proceed, your lawyer can advise you which type of bankruptcy is most appropriate for your situation.
In the case of individuals, unlike businesses, there are two common forms of bankruptcy: Chapter 7 and Chapter 13. Here is a brief description of how each type works:
Chapter 7. This type of bankruptcy essentially liquidates your assets to pay off your creditors. Some assets, which typically include part of the equity in your home and automobile, personal items, clothing, tools needed for your job, pensions, social security, and any other public benefits, are exempt, which means you can keep them.
But your remaining, non-exempt assets will be sold off by a trustee appointed by the bankruptcy court and the proceeds will then be distributed to your creditors. Non-exempt assets may include property (other than your primary residence), recreational vehicles, boats, a second car or truck, collectibles or other valuables, bank accounts and investment accounts.
Walking Away From Debt Vs. Filing Bankruptcy
At the end of the process, most of your debts will be paid off and you will no longer have any obligation to repay them. However, some debts, such as student loans, child support and taxes, cannot be paid off. Chapter 7 is generally chosen by individuals with lower income and few assets. Your eligibility is also subject to a means test, as explained below.
In this type of bankruptcy, you are allowed to withhold your assets, but you must agree to repay your debts over a specified period of three to five years. The trustee collects your payments and distributes them to creditors. Chapter 13 bankruptcy is normally chosen by people who want to keep their non-exempt property intact or buy time against foreclosures or property seizures.
Whether applying for Chapter 7 or Chapter 13 is not just your decision. The courts also require an income test to determine if you are eligible for Chapter 7. The income test first compares your average income in the previous six months with the average income of a family of your size in your state; if you earn less than the median, you should be eligible for Chapter 7.
Even if your income is above the median, you may be eligible after subtracting some allowable expenses. But if the calculation shows that you have enough disposable income to start paying off your debts, instead of just clearing the list, the court may decide that Chapter 13 is your only option. To help determine your eligibility, you will be required to complete this Form 122A-2.
Real Talk About Personal Bankruptcy: Learn From The Experts
In filing for bankruptcy, you will also be asked to provide the court with a list of all the money you owe. Your debts are divided into two categories:
The bankruptcy court finds that secured debt has a higher priority because non-payment may allow the creditor to claim the property that serves as collateral.
Once all essential information has been filed with the court, the court appoints a trustee, whose job is to make sure your secured debt is repaid within a specified period. At that point, the court issues an automatic suspension that prevents creditors from seizing the assets through confiscation or foreclosure of the property.
When the bankruptcy court issues a discharge, you are relieved of your responsibility to repay the listed debts. This means that creditors no longer have a legal right against the debts, so they cannot carry out any collection activities, take any legal action or even communicate with you in any way.
Causes Of Personal Bankruptcies: Medical Bills And Student Loan Debt
The court will send creditors a notice that the debts have been paid off. A copy will also be sent to your attorney and the United States Trustee Program at the Department of Justice. Any creditor who attempts to collect a debt after receiving a notice of termination can be fined.
For a Chapter 7 bankruptcy, discharge is usually issued between four and six months after filing for bankruptcy. Termination under Chapter 13 of bankruptcy is issued after completion of the payment plan, usually three to five years after filing for bankruptcy.
Once your debts are cleared by the court, those creditors can no longer attempt to collect them or take any other legal action against you.
As previously mentioned, the bankruptcy will remain on your credit report for seven years (in the case of Chapter 13) or 10 years (in the case of Chapter 7). This can make it difficult to obtain additional credit, such as a bank loan or conventional credit card. However, the effect of bankruptcy on your credit score will diminish over time, and your score will gradually improve if you demonstrate that you are using credit responsibly.
What Do You Lose If You Declare Bankruptcy? Advantage Legal Group
One way to do this is a secured credit card, where you make a deposit with the issuing bank, which then becomes your line of credit. By using that card wisely and making payments on time, you can start establishing a new credit history. After a period of on-time payments, you may be entitled to a regular unsecured credit card.
The process of rebuilding your credit and restoring your financial life can take time. But failure, if you have no other viable choice, is not the end of the world.
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