Bankruptcy: Your Secret Weapon To Stop All Debts Now!
You have a family, job—you may or may not love—and plenty of debt. You’re looking for a great way to resolve your debt issues without losing everything you hold dear. You’re here to learn more about bankruptcy and how it can help eliminate your overpowering debt once and for all. Bankruptcy is the legal way to either repay your debts over time or eliminate them altogether.
You hesitate because bankruptcy isn’t discussed in a lot of social circles. If it is discussed, you may hear more negative than positives about filing for bankruptcy because even in the 21st century it carries some stigma. Here are the facts you should know when deciding whether to pursue bankruptcy.
Consumer Bankruptcy has Two Options: Chapter 7 and Chapter 13
Consumer bankruptcy has distinct options according to your financial circumstances and ability to repay. Chapter 7 is called liquidation bankruptcy. Chapter 13 is commonly referred to as wage earner’s bankruptcy. Both allow you to deal with your debts. The bankruptcy chapter differ in how debts are resolved.
Chapter 7 allows you to eliminate, or discharge, most of your unsecured debts. Unsecured debts are those bills without collateral backing them in case of default. These debts are:
• Credit cards
• Store cards
• Payday loans
• Vehicle loans
A bankruptcy trustee, or person overseeing the bankruptcy case, has the right to liquidate, or sell, your nonexempt property. Exempt property such as your home is off limits and you can keep it. The nonexempt property is sold and proceeds given to your creditors. A majority of bankruptcy lawyers are able to help you keep most of your property as exempt. If you have no property to sell, your creditors get nothing. Your debts are wiped out without any creditor payment.
Going through the Chapter 7 Bankruptcy Process
Chapter 7 bankruptcy takes around three months from the filing to the discharge and costs approximately $335 to file. Filing includes administrative fees. Both can be waived or paid in instalments. A Chapter 7 case begins with a petition. This petition includes detailed information about:
• Monthly living expenses
• Recent financial transactionsTypically, you take one trip to the courthouse and that’s for your 341 hearing, commonly called a creditors’ meeting. The hearing occurs about 40 days after you file and you will answer questions from your trustee under oath. Creditors may or may not attend the hearing.After the hearing, if you have nonexempt property, the trustee collects it. Once the case ends, your debts are listed as “discharged” and you owe nothing to creditors.
Are You Eligible for Chapter 7?
The answer depends on whether you qualify for either bankruptcy chapter. Whether you’re eligible depends on your:
- Credit counseling: credit counseling is required. You have to speak to a counselor to determine if you have an alternative to filing bankruptcy.
- Means test. This test involves subtracting your average monthly income from your state’s medium income for the number of people in your household. Your average monthly income is taken from the last six months. If the balance is higher than your median income in your state, you pass the means test.
This means that if you don’t have enough disposable income to repay your debts, you qualify for the Chapter 7. Disposable income is the amount of money left after you’ve paid all your monthly bills. We’ll discuss what happens if you have enough disposable income to repay debts later.
- Previous bankruptcies: Discharged Chapter 7 bankruptcies within the last six to eight years limit your ability to file again.
- Bankruptcy dismissal within 180 daysWage Earner’s Bankruptcy – Chapter 13Chapter 13 bankruptcy is the most powerful bankruptcy chapter you can file. It allows you to keep all property, exempt or not. You pay creditors what you owe them in a series of payments made to the bankruptcy trustee. The monthly amount is based upon a repayment plan approved by the bankruptcy court and you’ll have to make payments for three to five years depending on the plan’s details. Your plan will include:
- Administrative claims such as attorneys’ fees, trustee’s commission
• Secured debts such as mortgage or car loan arrearage
• Unsecured debts
• Priority debts such as child support and alimony payments
- Going through the Chapter 13 Bankruptcy Process Chapter 13 and Chapter 7 have the same process. You must petition the court and include information such as your expenses, debts and property. You will first have to complete creditor counseling and the means test.
Remember the part about disposable income? You need to have enough disposable income to pay your creditors. You attend the creditor’s meeting and make your payments on time.
The Most Powerful Part about Chapter 13: Automatic Stay
Do you need to stop foreclosure on your home?
Do you need to get your utilities turned back on in your place?
Are you being sued in civil court?
An automatic stay is part of the Chapter 13 petition. An automatic stay immediately stops creditors from continuing to take your home, car or shutting off your utilities. As soon as you file the petition, your creditors must cease their actions regarding:
- Property foreclosure
• IRS tax liens
• Car repossessions
• Wage garnishments
• Utilities shut-off noticesIn many states, an automatic stay won’t stop an eviction. In every state, an automatic stay won’t stop:
- Divorce proceedings
• Paternity proceedings
• Criminal proceedingsDebts Chapter 7 and Chapter 13 Won’t Eliminate Unfortunately, there are some debts consumer bankruptcy won’t dismiss or stop. These debts are your:
- Most recent income tax debts
• Child support
• Debts not included in your bankruptcy petition
• Debts incurred from personal injury or wrongful death lawsuits involving drunk driving
• Traffic tickets, traffic fines and criminal restitutionGetting Help with Your Bankruptcy Whether you’re thinking about filing bankruptcy or are ready to file already, contact an experienced bankruptcy attorney. Many people choose to hire a bankruptcy attorney because it eliminates some of the mistakes made with petitions filed without legal representation.
For instance, a person without legal representation may file the wrong bankruptcy chapter and have their case dismissed, or transfer property into someone’s name to keep it. The latter is a big no-no and can get you in a lot of trouble.
You’re ready to get a fresh financial start? Contact a lawyer for help.
Give us a call for a free, no-obligation phone consultation so we can discuss the next steps with you…