What Happens to My Car During Bankruptcy?
Written by Canterbury Law Group

Can You Keep Your Car After Filing Bankruptcy?

Whether you can keep your car after filing bankruptcy depends on several factors, particularly the type of bankruptcy you file, the value of your car, and the exemptions available in your state. Here’s a breakdown:

Types of Bankruptcy:

  • Chapter 7 Bankruptcy: This type aims to liquidate non-exempt assets to pay creditors. Whether you keep your car depends on:
    • Car Value vs. Exemption: If your car’s value falls below the motor vehicle exemption allowed in your state, you can likely keep it. This exemption protects a certain value of your car from being sold by the bankruptcy trustee to pay creditors.
    • Car Loan: If you have a car loan, keeping the car requires either:
      • Reaffirmation: You agree to continue making payments under the original loan terms. This can be risky as you lose the protection of bankruptcy if you default on payments later.
      • Redemption: You pay the car’s current value to the lender to keep the car and own it free and clear.
  • Chapter 13 Bankruptcy: This type involves creating a repayment plan to repay creditors over 3-5 years. You generally keep your car as long as you stay current on your car loan payments and other plan payments.

Here are some additional points to consider:

  • Equity: The difference between your car’s value and your loan balance is your equity. If your equity exceeds the exemption, the trustee may sell the car and use the proceeds to pay creditors in a Chapter 7 case.
  • State Exemptions: Each state has different bankruptcy exemptions, so it’s crucial to research the specific exemption amount for your state’s motor vehicles. You can find this information online, through legal resources, or by consulting with a bankruptcy attorney.

What Happens to Your Car in Chapter 7 Bankruptcy?

In Chapter 7 bankruptcy, the fate of your car depends on various factors, including the equity you have in the vehicle, whether you’re behind on payments, and the exemptions available to protect assets in your state. Here’s what typically happens to your car in Chapter 7 bankruptcy:

  1. Equity and Exemptions: If your car has significant equity (the value of the car exceeds any outstanding loans or liens), it may be at risk of being sold by the bankruptcy trustee to repay your creditors. However, many states offer exemptions that allow you to protect a certain amount of equity in your car. If the equity in your car is within the exemption limit, you may be able to keep your car.
  2. Secured Debt: If you have a car loan, it’s considered a secured debt, meaning the loan is secured by the vehicle itself. In Chapter 7 bankruptcy, you have the option to reaffirm the debt, redeem the car by paying its current value in a lump sum, or surrender the car to the lender. Reaffirming the debt means you agree to continue making payments on the car loan and retain ownership of the vehicle.
  3. Vehicle Exemption: In many states, there’s a specific exemption called the motor vehicle exemption, which allows you to exempt a certain amount of equity in your car from being used to repay creditors in bankruptcy. If the equity in your car falls within the exemption limit, you can typically keep your car.
  4. Loan Arrears: If you’re behind on car payments and want to keep the car, you may have the option to catch up on missed payments through a reaffirmation agreement or a repayment plan approved by the court.
  5. Nonexempt Equity: If the equity in your car exceeds the exemption limit and you’re unable to protect it, the bankruptcy trustee may sell the car, use the proceeds to pay off your creditors, and distribute any remaining funds to you.
  6. Leased Cars: If you’re leasing a car and want to keep it, you may have the option to assume the lease and continue making payments. However, you’ll need to continue making payments on time to retain possession of the leased vehicle.

What Happens to Your Car in Chapter 13 Bankruptcy?

In Chapter 13 bankruptcy, the fate of your car can be different compared to Chapter 7 bankruptcy due to the structure of the repayment plan. Here’s what typically happens to your car in Chapter 13 bankruptcy:

  1. Automatic Stay: Like Chapter 7 bankruptcy, filing for Chapter 13 bankruptcy triggers an automatic stay, which temporarily halts creditor collection actions, including repossession of your car.
  2. Repayment Plan: In Chapter 13 bankruptcy, you propose a repayment plan to the court to repay all or a portion of your debts over three to five years. Your car loan is included in this plan.
  3. Cure Arrears: If you’re behind on car payments, your Chapter 13 repayment plan allows you to catch up on missed payments (arrears) over the plan’s duration. This allows you to keep your car while repaying what you owe.
  4. Valuation and Treatment: The value of your car is determined based on its fair market value, not the amount owed on the loan. If the value of your car is less than the amount owed (negative equity), you may have the option to cram down the loan to the car’s fair market value, potentially reducing the principal balance and interest rate.
  5. Interest Rate: In some cases, Chapter 13 bankruptcy allows you to reduce the interest rate on your car loan, making monthly payments more affordable.
  6. Reaffirmation: You may have the option to reaffirm your car loan during Chapter 13 bankruptcy, meaning you agree to continue making payments on the loan and retain ownership of the vehicle. However, reaffirmation is subject to court approval and may not always be necessary or advisable.
  7. Surrender or Redeem: If you’re unable to afford the car payments or no longer want to keep the car, you may have the option to surrender the vehicle to the lender or redeem it by paying its current value in a lump sum.
  8. Completion of Plan: Once you successfully complete your Chapter 13 repayment plan, any remaining balances on your car loan and other unsecured debts may be discharged, allowing you to retain ownership of your car free and clear of debt.

How is Debt Managed in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, debt is managed differently compared to Chapter 13 bankruptcy. Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the sale of nonexempt assets to repay creditors and the discharge of qualifying debts. Here’s how debt is managed in Chapter 7 bankruptcy:

  1. Automatic Stay: Upon filing for Chapter 7 bankruptcy, an automatic stay goes into effect, which temporarily halts creditor collection actions, including foreclosure, repossession, wage garnishment, and debt collection lawsuits.
  2. Liquidation of Assets: In Chapter 7 bankruptcy, a bankruptcy trustee is appointed to oversee the liquidation of nonexempt assets. Nonexempt assets are those not protected by exemptions under federal or state law. The trustee sells these assets and distributes the proceeds to creditors. However, many states have exemptions that allow debtors to protect certain assets from liquidation, such as a primary residence, personal belongings, and retirement accounts.
  3. Debt Discharge: Certain types of debts may be discharged (eliminated) in Chapter 7 bankruptcy, meaning you’re no longer legally obligated to repay them. Qualifying debts typically include unsecured debts such as credit card debt, medical bills, personal loans, and certain types of loans. However, certain debts, such as child support, alimony, most student loans, and certain tax debts, are generally not dischargeable in Chapter 7 bankruptcy.
  4. Exempt Property: In Chapter 7 bankruptcy, debtors are allowed to keep (“exempt”) certain property up to a certain value, as determined by federal or state exemption laws. Exempt property typically includes necessities such as clothing, household furnishings, tools of the trade, and a primary residence up to a specified equity limit.
  5. Means Test: To qualify for Chapter 7 bankruptcy, debtors must pass a means test, which evaluates their income and expenses to determine if they have enough disposable income to repay their debts through a Chapter 13 repayment plan. If a debtor’s income exceeds the median income for their state or if they fail the means test, they may be required to file for Chapter 13 bankruptcy instead.
  6. Debt Counseling: Before receiving a discharge in Chapter 7 bankruptcy, debtors are required to complete credit counseling from a court-approved agency. Additionally, debtors must complete a financial management course after filing for bankruptcy.
  7. Discharge of Debts: Once the bankruptcy process is complete and any required courses are finished, qualifying debts are discharged, providing debtors with a fresh financial start. However, it’s important to note that not all debts may be discharged, and certain obligations, such as child support, alimony, and certain tax debts, may survive bankruptcy.

How is Debt Managed in Chapter 13 Bankruptcy?

In Chapter 13 bankruptcy, debt is managed through a court-approved repayment plan. Unlike Chapter 7 bankruptcy, where certain assets may be sold to pay off creditors, Chapter 13 allows individuals with regular income to reorganize their debts and create a plan to repay all or a portion of their debts over a period of three to five years. Here’s how debt is managed in Chapter 13 bankruptcy:

  1. Filing and Plan Proposal: To initiate Chapter 13 bankruptcy, you must file a petition with the bankruptcy court and propose a repayment plan outlining how you will repay your debts over the plan’s duration. The plan typically prioritizes certain types of debts, such as priority debts (e.g., taxes, domestic support obligations), secured debts (e.g., mortgages, car loans), and unsecured debts (e.g., credit card debt, medical bills).
  2. Automatic Stay: Upon filing for Chapter 13 bankruptcy, an automatic stay goes into effect, which temporarily halts creditor collection actions, including foreclosure, repossession, wage garnishment, and debt collection lawsuits.
  3. Plan Confirmation: After filing the repayment plan, the bankruptcy trustee and creditors have an opportunity to review and object to the plan. If no objections are raised, or if objections are resolved, the bankruptcy court holds a confirmation hearing to approve the plan. Once the court confirms the plan, it becomes binding on both the debtor and creditors.
  4. Payment to Trustee: Under the Chapter 13 repayment plan, you make regular payments to the bankruptcy trustee, who then distributes the funds to creditors according to the terms of the plan. The trustee’s role is to oversee the administration of the bankruptcy estate, ensure compliance with the plan, and facilitate payments to creditors.
  5. Debt Repayment: During the plan’s duration, you make monthly payments to the trustee based on your disposable income and ability to repay debts. The trustee allocates these payments to creditors according to the plan’s terms. Secured debts, such as mortgages and car loans, are typically paid in full or brought current through the plan, while unsecured debts may receive partial repayment based on available funds.
  6. Completion of Plan: Once you successfully complete the Chapter 13 repayment plan, any remaining balances on eligible debts may be discharged, meaning you’re no longer legally obligated to repay them. However, certain debts, such as student loans, domestic support obligations, and certain tax debts, may not be dischargeable in Chapter 13 bankruptcy.

Overall, Chapter 13 bankruptcy provides individuals with a structured framework to repay their debts over time while retaining their assets and avoiding liquidation. It’s essential to work with an experienced bankruptcy attorney to navigate the Chapter 13 process, develop a feasible repayment plan, and achieve your financial goals.

How Does Bankruptcy Affect Credit?

Bankruptcy can have a significant impact on an individual’s credit score and creditworthiness. Here are some ways in which bankruptcy can affect credit:

  1. Credit Score: Filing for bankruptcy typically results in a significant drop in credit score. The extent of the drop depends on various factors, including the individual’s credit history, the type of bankruptcy filed (Chapter 7 or Chapter 13), and the amount of debt discharged.
  2. Credit Report: Bankruptcy remains on a credit report for a certain period, depending on the type of bankruptcy filed. Chapter 7 bankruptcy remains on a credit report for ten years from the filing date, while Chapter 13 bankruptcy remains for seven years from the filing date.
  3. Credit Availability: After filing for bankruptcy, individuals may find it challenging to obtain new lines of credit or loans. Lenders may view them as high-risk borrowers and may offer credit with higher interest rates and less favorable terms.
  4. Credit Card Accounts: Credit card accounts included in a bankruptcy filing are typically closed by the creditor. This can reduce the individual’s available credit and further impact their credit utilization ratio.
  5. Rebuilding Credit: While bankruptcy can have a negative impact on credit, it is not permanent. With responsible financial management and timely payments, individuals can begin rebuilding their credit over time. This may involve obtaining secured credit cards, making on-time payments, keeping credit utilization low, and avoiding new debt.
  6. Credit Counseling Requirement: Before receiving a bankruptcy discharge, individuals are required to complete credit counseling from a court-approved agency. This counseling may provide valuable financial education and help individuals develop strategies for managing credit responsibly in the future.
  7. Employment and Housing: While not directly related to credit, it’s worth noting that some employers and landlords may check credit reports as part of the application process. A bankruptcy filing could potentially impact employment opportunities or housing options, although this varies depending on the employer or landlord’s policies.
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Written by Canterbury Law Group

The Consequences Of Filing For Bankruptcy

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Filing for bankruptcy can have significant consequences, both financial and non-financial. It’s a complex legal process that provides relief for individuals or businesses struggling with overwhelming debt but comes with various implications. Here are some of the consequences of filing for bankruptcy:

Financial Consequences:

  1. Credit Score Impact:
    • Filing for bankruptcy will likely have a severe negative impact on your credit score. A bankruptcy record can remain on your credit report for several years, making it challenging to obtain credit or loans.
  2. Difficulty Obtaining Credit:
    • After bankruptcy, obtaining new credit, such as credit cards or loans, may be more difficult, and if approved, interest rates may be higher.
  3. Limited Access to Financial Products:
    • Bankruptcy can limit access to certain financial products and services. For example, you may find it challenging to qualify for a mortgage or an auto loan with favorable terms.
  4. Asset Liquidation:
    • In Chapter 7 bankruptcy, some of your assets may be sold to pay off creditors. Certain assets, however, may be exempt from liquidation.
  5. Repayment Plans (Chapter 13):
    • In Chapter 13 bankruptcy, you may be required to follow a court-approved repayment plan to pay off your debts over a specified period, usually three to five years.
  6. Impact on Co-Signers:
    • If someone co-signed a loan with you, they may become responsible for the debt if you file for bankruptcy.

Non-Financial Consequences:

  1. Public Record:
    • Bankruptcy is a public record, and your filing will be accessible to creditors, employers, and the general public.
  2. Employment Impact:
    • While federal law prohibits discrimination based solely on bankruptcy status, some employers may consider it during the hiring process. Positions involving financial responsibilities may be particularly affected.
  3. Housing and Utilities:
    • Some landlords and utility companies may inquire about your bankruptcy history, potentially affecting your ability to secure housing or utility services.
  4. Impact on Personal Relationships:
    • The stress and strain of financial difficulties and bankruptcy can impact personal relationships, including those with family and friends.
  5. Loss of Non-Exempt Property:
    • In Chapter 7 bankruptcy, non-exempt property may be sold to pay off creditors. Exemptions vary by state and protect certain types and amounts of property.

It’s important to note that the specific consequences can vary based on the type of bankruptcy filed (Chapter 7 or Chapter 13), individual circumstances, and applicable state laws. Additionally, while bankruptcy has significant consequences, it also provides individuals and businesses with an opportunity for a fresh financial start.

Before deciding to file for bankruptcy, it’s crucial to consult with a qualified bankruptcy attorney who can assess your situation, explain the potential consequences, and guide you through the process.

What Is the Process of Filing for Emergency Bankruptcy?

A bankruptcy case filed with only a portion of the necessary forms is known as an emergency bankruptcy filing. An emergency filing may also be referred to as an incomplete filing, a skeleton bankruptcy, or a barebones filing, depending on where you live. The minimal information needed to invoke the automatic stay protection is included in an emergency bankruptcy petition as required by the Bankruptcy Code.

Even in urgent situations, the automatic stay begins to operate as soon as your bankruptcy case is filed. All of your creditors are required by the automatic stay to cease pursuing collection actions against you. The automatic stay can start working even before you’ve finished filing for bankruptcy thanks to an emergency petition.

While it is possible to file for bankruptcy in an emergency situation before finishing all the necessary paperwork, doing so does not release you from filing for bankruptcy in an ordinary manner. As required by law, you have 14 days from the date of your emergency filing to file the remaining forms. If not, your case will be dropped, allowing your creditors to start pursuing collection.

Why Do Individuals File for Bankruptcy in an Emergency?

Most people file for emergency bankruptcy in order to stop a collection action that could soon be initiated. Before choosing to file for bankruptcy, many people do some research and consider their options. It may take some time to gather all the required paperwork and complete all the forms, even after you’ve made the decision to file.

The automatic stay has the power to halt additional collection attempts, but it cannot reverse already completed actions. For this reason, it’s imperative that the automatic stay be in place before there is a wage garnishment, bank levy, repossession, or foreclosure. In the event that you are unable to complete all of your paperwork prior to a significant collection event, you can file for emergency bankruptcy, which will protect you from creditors until you have completed your forms.

What is Required for an Urgent Case?

Only a small portion of the documentation needed to complete your bankruptcy filing will be needed for an emergency bankruptcy filing. You still need to fulfill a few minimal requirements in order to file for an emergency.

Select the Appropriate Type of Bankruptcy

Most people file for bankruptcy using either the Bankruptcy Code’s Chapter 7 or Chapter 13. These two types of bankruptcy were intended for different purposes and operate very differently. Chapter 7 is mainly used by debtors to get rid of unsecured debt, like credit card and medical bills. You have to make your payments on time in order to maintain your vehicle or home in Chapter 7.

Repossessions and foreclosures are frequently stopped through emergency bankruptcy filings. Chapter 13 bankruptcy typically makes more sense in these circumstances. The Chapter 13 repayment plan is often used by debtors who are behind on their rent, mortgage, or auto payments in order to catch up on these payments.

The type of bankruptcy you’re filing must be specified when filing an emergency case. Switching to a different chapter isn’t always simple if you select the incorrect kind of case. Try to arrange a meeting with a knowledgeable bankruptcy attorney if you’re unsure which chapter to file under. When you arrange the consultation, make sure to mention that you’re in an emergency.

Verify Your Eligibility

Not everyone is qualified to file for bankruptcy under Chapter 7. To find out if you are eligible for Chapter 7 relief, you will need to pass a means test. Although completing the means test calculations prior to filing is not necessary in the event of an emergency, it is a good idea in case there is a problem with your eligibility for Chapter 7.

You should also see if you are eligible for a bankruptcy discharge if you have previously filed for bankruptcy. There are waiting periods between a previous bankruptcy discharge and a new discharge mandated by the Bankruptcy Code. Depending on the chapter you filed under previously and the chapter you are filing under now, these wait times vary. The wait periods only come into play if your prior case resulted in a discharge. A Chapter 13 plan can be used to make up missed payments even if you are not eligible for a discharge because of an earlier case.

If you have previously filed for bankruptcy, there are additional restrictions that might be applicable to the automatic stay. The automatic stay usually lasts from the time a bankruptcy case is filed until it is dismissed or discharged. The automatic stay in your new case will only last 30 days if you filed for bankruptcy within the last year and that bankruptcy was dismissed (not discharged). If you want to prolong the automatic stay past 30 days, you can file a motion. Usually, you have to file the motion along with your emergency documents.

When you file for bankruptcy, the automatic stay won’t apply if you’ve filed for bankruptcy twice or more in the previous year. To enforce the stay, you can file a motion, but you’ll need to wait for a hearing and a ruling. You will not be shielded from ongoing collection actions by filing for emergency bankruptcy if there is no automatic stay in place.

Enroll in a Credit Counseling Program

Prior to filing for bankruptcy, all applicants must finish a credit counseling program from an authorized provider. This covers last-minute bankruptcy petitions. Most suppliers provide the course over the phone, online, or both. The cost ranges from $10 to $45, depending on the provider. The course is offered once, with sessions lasting typically less than two hours. A certificate will be emailed to you by the provider once the course is finished. When submitting your emergency forms to the court, you also need to submit this certificate.

Fill out the Forms That Are NECESSARY.

In order to file for emergency bankruptcy, you need to at least fill out and submit the following forms:

Form 101, Voluntary Petition: This eight-page form asks for basic details about your name, address, type of bankruptcy, and history of bankruptcies, if any.

Social Security Number Declaration (Form 121): You will only use your complete Social Security number here in your documentation. It is hidden from creditors, attorneys, and even your trustee; only the court can view it.

An alphabetical list of all your creditors along with their mailing addresses can be found in the creditor matrix. The matrix must be submitted in a specific format to the majority of bankruptcy courts. In certain courts, the list of creditors must be submitted with a verification form. To be sure of the requirements, check with the court where your case will be filed.

Obtain Your Filing Cost

For Chapter 7 cases, the bankruptcy court charges a filing fee of $338, and for Chapter 13 cases, it charges $313. When you file your case, the fee is due. You can file a motion requesting the court to allow you to pay the filing fee in installments if you are unable to pay the entire amount. When you file your emergency case, most courts require you to pay a minimum first installment. For confirmation, check with your court.

You may petition the court to have your filing fee waived if your income is less than 150% of the federal poverty guidelines. When filing your emergency paperwork, you must also file your motion for installments or a fee waiver if you are not paying the full fee.

Put In The Case

New cases can only be filed online by bankruptcy attorneys. Since mailing your forms can cause a delay, it is best to file your paperwork in person in an emergency. To locate your bankruptcy court, use the federal court locater. Certain bankruptcy districts have restrictions on where you can file depending on the county in which you reside. To verify the residence rules and office hours, visit the website of your court. Finding out if your court has any additional requirements—such as bringing specific forms of identification or extra copies of your forms—also helps. Call the court clerk if you’re unsure.

I’ve filed for bankruptcy in an emergency. What Now?

Although filing for emergency bankruptcy will provide you with some immediate relief, your work is not over. Notifying the creditor who prompted you to file the emergency case is necessary. Additionally, you must finish and submit the last of your bankruptcy forms.

Let Your Creditor Know

Notification of your emergency filing will be mailed to each creditor in your creditor matrix by the bankruptcy court. However, it may take a few days or more for this notice to reach creditors. You should give the creditor a call directly in order to successfully halt a garnishment, lawsuit, foreclosure, repossession, or other collection action. Make contact with the creditor’s lawyer if you are familiar with them rather than contacting the creditor directly. Typically, you’ll need to provide them with your bankruptcy case number, the court you filed with, and the filing date. In case there is an issue, jot down the time and person you spoke with when you called.

Fill out the remaining bankruptcy forms and file them.

You have just 14 days from the time you file your emergency documents to the time you file the remaining bankruptcy forms. Remember, fourteen days can pass quickly, so don’t wait. The remaining forms, along with instructions, can be accessed online, just like the emergency forms. For every state, Upsolve also offers a free filing guide.

The bankruptcy court will send you a deficiency notice a few days after you file your emergency case. This does not imply that the material you have already filed is flawed. It simply indicates that you haven’t yet submitted all necessary forms. A list of the forms you still need to file and the due date for doing so will be included with your deficiency notice. To ensure that the remaining forms are received by the deadline, submit them in person.

The court has the right to dismiss your case if you fail to file the last of the bankruptcy forms by the deadline. The automatic stay is lifted upon a dismissal, allowing your creditors to resume collection efforts. You can file a motion requesting an extension from the court if you require more time to file the remaining forms. Don’t ask for more time unless you absolutely need it, as courts are frequently hesitant to grant these extensions.

Following the submission of all necessary paperwork, your case will be handled similarly to other bankruptcy cases. The date, time, and location of your creditors’ meeting, along with your trustee’s contact details, ought to be included in a notification you receive. About 30 to 45 days typically pass after the date of filing. It’s likely that you’ll receive a request for documents from your trustee, which you must submit at least seven days prior to the meeting.

What Drawbacks Come With Emergency Bankruptcy Filing?
The fact that you have so little time to prepare your bankruptcy forms is the largest disadvantage of filing an emergency case. The shapes are intricate. Documents like bank statements, tax returns, and pay stubs must be gathered. Another disadvantage is that you might run into unforeseen problems with your case when filling out your other forms, like property that isn’t exempt from fees. You don’t have much time to solve problems once you encounter them.

Furthermore, even though filing for emergency bankruptcy gives you some relief, in some cases it’s only a short-term fix. For example, in Chapter 7, you have to immediately bring the payments current if you want to keep your house or vehicle. You have an extended period in Chapter 13 to make up missed payments. Regardless of the chapter you file under, you only have 30 days to bring your payments current if you filed for bankruptcy to prevent an eviction.You only submit the bare minimum of paperwork to the bankruptcy court when filing for bankruptcy emergency. When you need to halt an impending threat of collection, like a wage garnishment, foreclosure, or repossession, emergency filings can be useful. In these circumstances, you might have to file for bankruptcy quickly because you won’t have enough time to finish all the paperwork. You are protected from creditors by the automatic stay, which is activated by the emergency filing. However, you only have 14 days from the date of filing to finish all other documentation. This could be dangerous, particularly if problems arise with your case. Your case may be dismissed if the remaining forms are not submitted by the deadline.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business BankruptcyChapter 7 BankruptcyCreditor Representation, Chapter 5 ClaimsChapter 13 Bankruptcy, Business RestructuringChapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

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Written by Canterbury Law Group

The Consequences Of Filing For Bankruptcy

Can Filing For Bankruptcy Make Your Tax Debt Go Away?

Filing for bankruptcy can offer a fresh start for those burdened by overwhelming debt, but it does come with consequences that can impact your financial and personal life. Here’s an overview of the potential downsides:

Financial Impact:

  • Credit Score Damage: Bankruptcy remains on your credit report for 7 years (Chapter 13) or 10 years (Chapter 7), significantly impacting your credit score during that period. Obtaining loans, credit cards, and other forms of credit might be difficult or come with high interest rates.
  • Asset Liquidation: Chapter 7 bankruptcy may involve selling non-exempt assets to repay creditors, potentially leading to property loss. Chapter 13 allows you to keep your assets but requires a repayment plan, potentially straining your finances.
  • Employment Considerations: While federal law prohibits discrimination based on bankruptcy, some employers might conduct credit checks during hiring, and seeing a bankruptcy filing could create challenges in specific industries.

Personal Impact:

  • Emotional Stress: Navigating the legal process, dealing with financial hardship, and facing social stigma associated with bankruptcy can be emotionally overwhelming.
  • Limited Opportunities: Lower credit scores can restrict access to certain opportunities like renting apartments, obtaining professional licenses, or qualifying for insurance with favorable rates.
  • Relationship Strain: Financial stress and the complexities of bankruptcy can strain relationships with family and friends. Open communication and understanding can help mitigate this impact.

However, it’s important to consider the potential benefits alongside the consequences:

  • Debt Relief: Bankruptcy can provide lasting relief from overwhelming debt, offering a clean slate and peace of mind.
  • Improved Financial Management: The process can incentivize healthy financial habits and budgeting practices to avoid future debt pitfalls.
  • Rebuild Opportunities: While credit repair takes time, responsible financial management after bankruptcy can gradually improve your credit score and access to financial products.

Financial Consequences:

  1. Credit Score Impact:
    • Filing for bankruptcy will likely have a severe negative impact on your credit score. A bankruptcy record can remain on your credit report for several years, making it challenging to obtain credit or loans.
  2. Difficulty Obtaining Credit:
    • After bankruptcy, obtaining new credit, such as credit cards or loans, may be more difficult, and if approved, interest rates may be higher.
  3. Limited Access to Financial Products:
    • Bankruptcy can limit access to certain financial products and services. For example, you may find it challenging to qualify for a mortgage or an auto loan with favorable terms.
  4. Asset Liquidation:
    • In Chapter 7 bankruptcy, some of your assets may be sold to pay off creditors. Certain assets, however, may be exempt from liquidation.
  5. Repayment Plans (Chapter 13):
    • In Chapter 13 bankruptcy, you may be required to follow a court-approved repayment plan to pay off your debts over a specified period, usually three to five years.
  6. Impact on Co-Signers:
    • If someone co-signed a loan with you, they may become responsible for the debt if you file for bankruptcy.

Non-Financial Consequences:

  1. Public Record:
    • Bankruptcy is a public record, and your filing will be accessible to creditors, employers, and the general public.
  2. Employment Impact:
    • While federal law prohibits discrimination based solely on bankruptcy status, some employers may consider it during the hiring process. Positions involving financial responsibilities may be particularly affected.
  3. Housing and Utilities:
    • Some landlords and utility companies may inquire about your bankruptcy history, potentially affecting your ability to secure housing or utility services.
  4. Impact on Personal Relationships:
    • The stress and strain of financial difficulties and bankruptcy can impact personal relationships, including those with family and friends.
  5. Loss of Non-Exempt Property:
    • In Chapter 7 bankruptcy, non-exempt property may be sold to pay off creditors. Exemptions vary by state and protect certain types and amounts of property.

It’s important to note that the specific consequences can vary based on the type of bankruptcy filed (Chapter 7 or Chapter 13), individual circumstances, and applicable state laws. Additionally, while bankruptcy has significant consequences, it also provides individuals and businesses with an opportunity for a fresh financial start.

Remember:

  • The specific consequences of bankruptcy vary depending on your individual circumstances, type of bankruptcy filed, and state laws.
  • Consulting with a qualified bankruptcy attorney is crucial to understand the process, potential ramifications, and explore alternatives best suited to your situation.
  • Bankruptcy should not be considered lightly, but it can be a valuable tool for overcoming financial struggles and achieving long-term financial stability.

 

Filing for bankruptcy can affect certain types of tax debt, but it does not automatically make all tax obligations disappear. The treatment of tax debt in bankruptcy depends on the type of tax, the specific circumstances, and the chapter of bankruptcy you file.

General Rules:

  • Tax debt is treated differently than other debts in bankruptcy. In most cases, it’s considered a “priority debt,” meaning it gets higher priority for repayment compared to other unsecured debts.
  • Discharging (eliminating) your tax debt through bankruptcy is generally difficult. You’ll need to meet specific criteria and exceptions.

Here’s a General Overview:

  1. Chapter 7 Bankruptcy:
    • In a Chapter 7 bankruptcy, your non-exempt assets may be liquidated to pay off creditors, but certain debts, including some tax debts, may be discharged. However, not all tax debts are dischargeable. To be dischargeable in Chapter 7, the tax debt must meet specific criteria, including that it is income tax debt, the tax return was filed on time, and the tax assessment is at least three years old.
  2. Chapter 13 Bankruptcy:
    • Chapter 13 bankruptcy involves a repayment plan over three to five years. While you won’t necessarily eliminate tax debt in a Chapter 13 case, you may be able to include tax debt in your repayment plan, allowing you to pay it back over time. This can provide a structured way to address tax arrears.
  3. Priority Tax Debt:
    • Some tax debts are considered priority debts and may not be dischargeable in bankruptcy. Priority tax debts include recent income tax debts, certain payroll taxes, and taxes associated with fraud. Priority tax debts are generally not dischargeable, but a Chapter 13 plan can help you manage the repayment.
  4. Tax Liens:
    • Bankruptcy may not remove tax liens. While the personal obligation to pay the tax debt may be discharged, a tax lien secured by property may survive bankruptcy. The IRS or state taxing authority may still have a claim on your property, and you may need to address the lien separately.
  5. Professional Advice:
    • It’s crucial to consult with a tax attorney or bankruptcy attorney to assess your specific tax situation. They can provide guidance on the dischargeability of tax debt based on the applicable bankruptcy laws and help you navigate the complexities of the process.

In summary, while bankruptcy can address certain tax debts, not all tax obligations are dischargeable, and the treatment of tax debt in bankruptcy can be complex. Seeking professional advice is essential to understand how bankruptcy may impact your specific tax situation and to explore the available options for managing tax debt.

Important points to remember:

  • Consulting a bankruptcy attorney and a tax professional is crucial before making any decisions. They can assess your specific situation and advise you on the best course of action.
  • Bankruptcy shouldn’t be seen as a way to avoid paying your taxes. It should only be considered as a last resort after exploring other options like payment plans or negotiating with the IRS.
  • Filing for bankruptcy has long-term implications, including a negative impact on your credit score and potential difficulties obtaining credit in the future.

Here are some additional resources that you might find helpful:

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Written by Canterbury Law Group

Can Filing For Bankruptcy Make Your Tax Debt Go Away?

Can Filing For Bankruptcy Make Your Tax Debt Go Away?

Filing for bankruptcy can affect certain types of tax debt, but it does not automatically make all tax obligations disappear. The treatment of tax debt in bankruptcy depends on the type of tax, the specific circumstances, and the chapter of bankruptcy you file.

General Rules:

  • Tax debt is treated differently than other debts in bankruptcy. In most cases, it’s considered a “priority debt,” meaning it gets higher priority for repayment compared to other unsecured debts.
  • Discharging (eliminating) your tax debt through bankruptcy is generally difficult. You’ll need to meet specific criteria and exceptions.

Here’s a General Overview:

  1. Chapter 7 Bankruptcy:
    • In a Chapter 7 bankruptcy, your non-exempt assets may be liquidated to pay off creditors, but certain debts, including some tax debts, may be discharged. However, not all tax debts are dischargeable. To be dischargeable in Chapter 7, the tax debt must meet specific criteria, including that it is income tax debt, the tax return was filed on time, and the tax assessment is at least three years old.
  2. Chapter 13 Bankruptcy:
    • Chapter 13 bankruptcy involves a repayment plan over three to five years. While you won’t necessarily eliminate tax debt in a Chapter 13 case, you may be able to include tax debt in your repayment plan, allowing you to pay it back over time. This can provide a structured way to address tax arrears.
  3. Priority Tax Debt:
    • Some tax debts are considered priority debts and may not be dischargeable in bankruptcy. Priority tax debts include recent income tax debts, certain payroll taxes, and taxes associated with fraud. Priority tax debts are generally not dischargeable, but a Chapter 13 plan can help you manage the repayment.
  4. Tax Liens:
    • Bankruptcy may not remove tax liens. While the personal obligation to pay the tax debt may be discharged, a tax lien secured by property may survive bankruptcy. The IRS or state taxing authority may still have a claim on your property, and you may need to address the lien separately.
  5. Professional Advice:
    • It’s crucial to consult with a tax attorney or bankruptcy attorney to assess your specific tax situation. They can provide guidance on the dischargeability of tax debt based on the applicable bankruptcy laws and help you navigate the complexities of the process.

In summary, while bankruptcy can address certain tax debts, not all tax obligations are dischargeable, and the treatment of tax debt in bankruptcy can be complex. Seeking professional advice is essential to understand how bankruptcy may impact your specific tax situation and to explore the available options for managing tax debt.

Important points to remember:

  • Consulting a bankruptcy attorney and a tax professional is crucial before making any decisions. They can assess your specific situation and advise you on the best course of action.
  • Bankruptcy shouldn’t be seen as a way to avoid paying your taxes. It should only be considered as a last resort after exploring other options like payment plans or negotiating with the IRS.
  • Filing for bankruptcy has long-term implications, including a negative impact on your credit score and potential difficulties obtaining credit in the future.

Here are some additional resources that you might find helpful:

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Written by Canterbury Law Group

How Often Can You File For Bankruptcy?

How Often Can You File For Bankruptcy?

There’s no limit to how many times you can file for bankruptcy in your lifetime, but there are waiting periods you must adhere to between filings. These waiting periods depend on the specific chapters of bankruptcy you file under and whether your previous filings were successful.

Chapter 7 bankruptcy:

  • You must wait 8 years after a successful Chapter 7 filing before filing again.
  • If your previous Chapter 7 filing was dismissed within the past 6 years due to your failure to comply with court orders or provide required documents, you must wait 6 years to file again.

Chapter 13 bankruptcy:

  • You must wait 4 years after a successful Chapter 13 filing before filing for Chapter 7.
  • You can file for Chapter 13 again 2 years after a successful Chapter 13 filing, as long as you paid off at least 70% of your debts through the previous plan.
  • If your previous Chapter 13 filing was dismissed within the past 6 years due to your failure to comply with court orders or provide required documents, you must wait 6 years to file for Chapter 13 again.

Exceptions:

  • There are a few exceptions to these waiting periods. For example, if you can demonstrate that you have experienced undue hardship since your last filing, you may be able to file again sooner.
  • You can also file for a different chapter of bankruptcy than you used before without waiting the full period. For example, if you filed for Chapter 7 in the past, you can file for Chapter 13 now, or vice versa.

It’s important to consult with a bankruptcy attorney to discuss your specific situation and determine the best course of action for you.

Here are some additional things to keep in mind about filing for bankruptcy:

  • Bankruptcy can have a negative impact on your credit score.
  • You may lose some of your assets in a Chapter 7 bankruptcy.
  • You will need to complete credit counseling before filing for bankruptcy.

It is not appropriate for everyone to file for Chapter 7 bankruptcy. Even if filing for Chapter 7 bankruptcy seems like the best option for you to reduce your debt, you should weigh the drawbacks first.

If your income is too high, you cannot file for Chapter 7.

You must not have any disposable income and make less than the state median income in order to qualify for Chapter 7. Individuals with disposable income are those who have money left over after covering their essential living expenses and can save. The means test can be used to get your disposable income.
If you have too much extra money than you need, you can’t just stop paying off your debt. While filing under Chapter 13 repayment plans is not permitted, you can still receive a bankruptcy discharge.

There Will Be a Brief Detriment to Your Credit

Prior to filing for bankruptcy, those who are able to make their monthly payments on time and maintain a high credit score will initially see a decline in their score. Additionally, your interest rates may rise momentarily. Nonetheless, declaring bankruptcy frequently improves a filer’s credit rating over time. You have the chance to raise your credit score right away if your bankruptcy discharge is approved.

Not All Unsecured Debts Are Erased by Chapter 7

Certain unsecured debts, such as child support or alimony, are never dischargeable in bankruptcy. Certain debts, such as tax obligations and certain student loans, may be difficult to discharge through bankruptcy. A common misconception is that filing for bankruptcy cannot be used to discharge student loan debt. According to the Bankruptcy Code, you may be able to discharge your student loan debt if repaying it would put you through extreme hardship. The Department of Justice gave courts more precise guidelines in late 2022 regarding what constitutes undue hardship. See if you qualify for this requirement by reading our article on how to file for bankruptcy while having student loans. Our group even produced a filing tool to facilitate the cancellation of student loans.

Some Property Types May Be Lost

Giving up some pricey things could be one of the trade-offs for receiving a bankruptcy discharge in a matter of months. We refer to these things as nonexempt property. In Chapter 7 bankruptcy proceedings, the bankruptcy trustee may sell assets of this kind to satisfy creditors. Having said that, Chapter 7 cases hardly ever involve this.

Your Bankruptcy Under Chapter 7 Others Are Not Protected by Filing (Like Co-signers)

Your only obligation to pay the debt is eliminated by Chapter 7. It does not relieve someone else of their debt. The only kind of bankruptcy that can shield a co-signer is Chapter 13, but that protection is limited to situations where you pay off the debt through your repayment plan.

What Is Bankruptcy Under Chapter 13?

For those seeking a fresh start, Chapter 7 and Chapter 13 bankruptcy are both effective debt relief options. Chapter 13 (also known as the “reorganization” bankruptcy) may be appropriate for you if you have a lot of disposable income, nonexempt assets that you wish to preserve, and the ability to adhere to a payment schedule.

The Price of Bankruptcy Filing

The cost of declaring bankruptcy can be high. The two required credit counseling and debt education courses, the court filing fee, and the cost of legal representation (should you decide to retain counsel) must all be taken into account. For Chapter 7 cases, the Bankruptcy Court levies a $338 filing fee, which, unless you are granted a waiver, you must pay. The court will dismiss your case if you fail to pay the fee in full, even though you are able to request to pay it in four installments. In addition to the court filing fees, you will be required to pay the attorney fees of any law firm or bankruptcy attorney you retain for assistance. This usually adds up to roughly $1,500, and it needs to be paid before your case is filed.
The price of attending the required debt education and credit counseling courses is in addition to the filing fee and legal fees.

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Written by Canterbury Law Group

Can You File Bankruptcy Twice?

It’s legal to file as many bankruptcy cases as necessary, but there are rules about how often you can file. The U.S. Bankruptcy Code regulates multiple case filings, how long a filer must wait, and other specifics that we’ll cover in detail below.

The mandatory waiting period between filings depends on several factors, including:

The result of your first bankruptcy case: If you received a bankruptcy discharge for your first case, the waiting period before you can file again is different than if your previous case was dismissed without discharge.

The type of bankruptcy you filed before: Individuals and families generally file either Chapter 7 or Chapter 13 bankruptcy. The time limits before you’re allowed to file again differ depending on the chapter of your previous filing.

The chapter of bankruptcy you file the second time: The waiting period between bankruptcy filings is affected by both the chapter of the previous bankruptcy and the chapter you plan to file in the subsequent case. 

What’s the Mandatory Waiting Period Between a First and Second Bankruptcy Filing?

Under bankruptcy law, people can file for bankruptcy more than once to get the fresh start they deserve. The mandatory waiting period between bankruptcy cases depends on whether the first bankruptcy case was successfully discharged, whether your first bankruptcy case was a Chapter 7 (liquidation case) or a Chapter 13 (reorganization with repayment plan), and what chapter of bankruptcy your second filing will be.

Successful Discharge of First Bankruptcy Case

The two main types of personal bankruptcy are Chapter 7 and Chapter 13. Most individuals and families file Chapter 7 bankruptcy. This is the quickest form of bankruptcy. It’s also known as a liquidation bankruptcy, though the majority of filers get to keep most or all of their belongings. 

It makes more sense for some people to file for Chapter 13 bankruptcy. Under Chapter 13, your debts are reorganized and you pay on a repayment plan that lasts three to five years. This has benefits that Chapter 7 doesn’t. 

Filers receive a bankruptcy discharge at the end of a successful Chapter 7 or Chapter 13 bankruptcy case. The discharge is a bankruptcy court order that erases certain debts and means lenders can’t ever legally attempt to collect on discharged debts again. 

The following outlines when you can file bankruptcy again and be eligible for a second discharge. The clock starts ticking on the date you filed your first bankruptcy, not the date of discharge.  

Filing Chapter 7 After Chapter 7

You must wait eight years between Chapter 7 bankruptcy cases. To receive a second discharge, you must wait eight years from the date you filed your first successful Chapter 7 case until you can file your second Chapter 7 case.

Filing Chapter 7 After Chapter 13

You must wait six years between filing a Chapter 13 case and filing a Chapter 7 case. This timeline starts on the date you filed your first successfully discharged Chapter 13 case. Once six years pass, you can file a second bankruptcy case under Chapter 7. The six-year waiting period can be waived if you paid all of your unsecured creditors in full during the initial Chapter 13 bankruptcy payment plan. Unsecured debts include credit card debt, medical bills, and other debts not secured or backed up by property.

Filing Chapter 13 After Filing Chapter 7

You must wait four years to file a Chapter 13 bankruptcy case after filing a Chapter 7 case. This four-year waiting period only applies if you’re hoping to receive a second discharge of debt in your second bankruptcy filing.

In some instances, it might make sense for a person to file a Chapter 13 bankruptcy after receiving a discharge in a Chapter 7 but before the four-year waiting period has passed. This is because Chapter 13 bankruptcy requires you to follow a payment plan to repay your debts. This can help you to catch up on missed payments. 

As soon as you file bankruptcy, creditors must stop all collection activity against you because of the automatic stay. This means that filing for bankruptcy can stop a foreclosure, at least temporarily. A Chapter 7 bankruptcy can stop a foreclosure while a person is in bankruptcy, but if you want to keep your house you have to make your monthly payments and catch up on any missed payments. 

A Chapter 13 bankruptcy includes a repayment plan that allows you to make up any missed mortgage payments over a three-to-five-year repayment plan. During this repayment plan, generally, your house can’t be foreclosed. This is why some people file Chapter 13 even though they’re not seeking to have their debts discharged. In this case, it wouldn’t be necessary to wait four years between filings. 

Filing Chapter 13 After Chapter 13

You must wait two years between Chapter 13 bankruptcy cases. To receive a second discharge of debts in Chapter 13, you must wait two years from the filing date of your first successfully discharged Chapter 13 case until the filing date of your second Chapter 13 case.

All waiting periods between bankruptcy filings are calculated from the filing date of the first case, not the discharge date. 

First Bankruptcy Case Not Discharged

There is a difference between a bankruptcy case that’s discharged and one that’s dismissed. If your first bankruptcy case was dismissed, you didn’t receive a discharge so you may be able to file a second bankruptcy case immediately. When a bankruptcy case is dismissed without a discharge, it means that none of the filer’s debts are erased and they’re still obligated to pay back their debts. 

Bankruptcy cases can be dismissed if:

  • You don’t appear at a required bankruptcy hearing, including the 341 meeting of creditors. 
  • You fail to file all necessary documents properly and on time or fail to pay required bankruptcy filing fees.
  • You don’t pay the required Chapter 13 plan payments.
  • You aren’t truthful in your bankruptcy filing.

Depending on the reasons your case was dismissed, you may be able to file for bankruptcy protection again right away or you may need to wait before filing again. Under the Bankruptcy Code, you must wait 180 days to re-file a bankruptcy case if your first case was dismissed by the bankruptcy court for not following the court’s orders or appearing before the court when required. 

You may also need to wait 180 days before filing a second bankruptcy case if you asked for a voluntary dismissal of your first bankruptcy case after one of your creditors filed for relief from the automatic stay. This means that a creditor formally asked the court to let them continue collection activity against you even though you filed for bankruptcy protection. 

When people file a second bankruptcy case after a first case is dismissed, the court will evaluate if the bankruptcy was filed in good faith. Good faith means that you’re not trying to take advantage of the bankruptcy process. For example, if your first case is dismissed for failure to pay the necessary filing fee, it’s generally okay for you to file a second case immediately as long as you pay all necessary fees in the second case. 

Is It a Good Idea To File Bankruptcy a Second Time?

Filing for bankruptcy is a powerful debt relief tool. You’ll need to look at your financial situation to determine whether filing a second bankruptcy case is a good idea for you or not. Filing for bankruptcy will harm your credit score and negatively impact your credit report, at least in the short term. A Chapter 7 bankruptcy will stay on your credit report for 10 years from the filing date and a Chapter 13 bankruptcy for seven years. 

While bankruptcy can harm your credit, not filing can also be harmful due to missed payments, outstanding debts, and lawsuits for unpaid debts. If you’re facing a second bankruptcy after many years have passed, it’s important to explore why you’re in this situation again. Then take steps to ensure your financial well-being moving forward.

In some cases, it’s a good strategic financial move to file a second bankruptcy after a successful discharge. For example, you may benefit from filing a Chapter 13 after a Chapter 7 discharge to set up a repayment plan to pay off past-due mortgage payments to save your house, catch up on child support arrears, or pay tax debts that were too new to be discharged in your Chapter 7 bankruptcy case. In the case of child support arrears or back taxes, filing a Chapter 13 second bankruptcy could help you avoid wage garnishment and stretch out your repayment plan over three to five years. There are many valid benefits to filing a second bankruptcy case. 

Abusive Bankruptcy Filings

The bankruptcy court looks closely at cases that may be abusing the bankruptcy process. An abusive bankruptcy filing could be a Chapter 7 filer that fails the means test. It could also apply to cases where an individual is inappropriately using the bankruptcy process to avoid paying back a debt, avoid a creditor, or buy time in a collection action, such as a foreclosure or pending lawsuit for unpaid debt. 

The court frowns upon people who abuse the bankruptcy process or who have no intention of following through with their bankruptcy case. People who file multiple cases are more heavily scrutinized by the bankruptcy courts. Repeat filers may lose some of the benefits of bankruptcy protection. For example, the court may deny their discharge or revoke the automatic stay, which stops collection activity. 

If You’re Seeking a Second Financial Fresh Start, Get Professional Help

Filing bankruptcy can be complex — filing successive bankruptcies can be difficult, confusing, and financially dangerous if you don’t plan well. An experienced bankruptcy attorney can help guide you. Bankruptcy attorneys are well-versed in the pitfalls of bankruptcy and multiple filings, the advantages bankruptcy offers, and court requirements. Many bankruptcy lawyers offer free consultations. 

Many people who are struggling with debt start their debt relief journey with credit counseling. Pre-bankruptcy credit counseling can help you evaluate all of your debt relief options, including bankruptcy, debt consolidation, debt settlement, and other debt management options that may be right for you. Debt relief solutions are never one-size-fits-all. You need to know what’s best for you given your financial situation.

Below is a summary of filing fees for bankruptcy, the price of required credit counseling, and if you qualify for fee waivers or installment payments.

You have to pay filing fees and expenses for credit and debt counseling when you file for bankruptcy. You may be eligible for a fee waiver or be able to pay in installments if you are unable to pay the filing fee.

You can find a summary of what needs to be paid, when, and how to be eligible for installment payments or a fee waiver in this article.

Bankruptcy Petition Fees: Chapter 7 and Chapter 13 Filing Fees

The total amount of fees you have to pay in order to file for bankruptcy is as follows, as of December 1, 2020:

For Chapter 7, $338
For Chapter 11, $1,738
Chapter 12: $278; Chapter 13: $313
Periodically, the bankruptcy court raises these fees. The U.S. Courts fee webpage has the most recent fees available.

Chapter 7: Installments and Waivers of Filing Fees

The filing fee is usually due at the time your bankruptcy petition is filed. There are two exclusions from Chapter 7 bankruptcy, though. Asking the court to waive the fee completely or allow you to pay it in installments is an option.

Application for Installments of the Chapter 7 Filing Fee

You file Form 103A Application for Individuals to Pay the Filing Fee in Installments to request permission from the court to pay your filing fee over time. You must indicate on the form that you are unable to pay the fee in full and that you will make no more than four payments within 120 days of the petition’s filing.

Request for Waiver of Chapter 7 Filing Fee

If the court waives the fee, you are not required to pay it. If you are eligible for a fee waiver, you

must be unable to make payments in installments and have an income that is less than 150% of the federal poverty threshold (official poverty line estimates are available from your bankruptcy court).
Fill out Form 103B, Application to Have the Chapter 7 Filing Fee Waived, and send it in to request a fee waiver. In many cases, the judge will approve the application without requiring you to appear in person, but you may still be required to appear in court so the judge can question you.

See how to make changes to bankruptcy forms.

In Chapter 13, there are no fee waivers or installment payments.

Fee waivers and installment payments are generally not available to Chapter 13 filers because they must have sufficient funds to support a repayment plan for three to five years following filing for bankruptcy. When submitting the case, budget for the cost.

Extra Fees Associated with Bankruptcy Filing

Credit counseling from an authorized provider must be completed no later than six months prior to filing for bankruptcy under Chapter 7 or Chapter 13. To get your bankruptcy discharge (the order that eliminates qualifying debt), you have to complete a debtor education course after filing your case.

For the necessary counseling, the majority of approved credit counseling providers charge $15 to $30, but you might not be required to pay anything. In accordance with the law, agencies must offer counseling regardless of your financial situation, so please inform the agency if this is not possible for you.

Additionally, the debtor education classes run about $35. You can request that the provider waive the fee or let you pay a smaller amount if you are unable to pay the full amount.

How to Pay Your Attorney Fees in Bankruptcy

Since many bankruptcy attorneys charge as little as $100 to begin, finding a way to pay Chapter 13 bankruptcy fees is not too difficult; the remaining amount can be rolled into your Chapter 13 repayment plan. You can pay your Chapter 13 fees gradually with this method.

You must pay your attorney in full before filing for Chapter 7 bankruptcy. For what reason? because legal fees are eliminated in Chapter 7 bankruptcy. Your attorney won’t get paid if you don’t make the entire payment.

To file for Chapter 7, how do you obtain the necessary funds? Most Chapter 7 filers divert their payments intended for bill cancellation during bankruptcy to pay their attorney. The funds will be borrowed by others from friends and relatives.

But there are other approaches. If you are unable to pay for a bankruptcy attorney, you can find out more information here about your options.

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Written by Canterbury Law Group

What Is The Downside of Filing For Bankruptcy

What Is The Downside of Filing For Bankruptcy

It is not appropriate for everyone to file for Chapter 7 bankruptcy. Even if filing for Chapter 7 bankruptcy seems like the best option for you to reduce your debt, you should weigh the drawbacks first.

If your income is too high, you cannot file for Chapter 7.

You must not have any disposable income and make less than the state median income in order to qualify for Chapter 7. Individuals with disposable income are those who have money left over after covering their essential living expenses and can save. The means test can be used to get your disposable income.
If you have too much extra money than you need, you can’t just stop paying off your debt. While filing under Chapter 13 repayment plans is not permitted, you can still receive a bankruptcy discharge.

There Will Be a Brief Detriment to Your Credit

Prior to filing for bankruptcy, those who are able to make their monthly payments on time and maintain a high credit score will initially see a decline in their score. Additionally, your interest rates may rise momentarily. Nonetheless, declaring bankruptcy frequently improves a filer’s credit rating over time. You have the chance to raise your credit score right away if your bankruptcy discharge is approved.

Not All Unsecured Debts Are Erased by Chapter 7

Certain unsecured debts, such as child support or alimony, are never dischargeable in bankruptcy. Certain debts, such as tax obligations and certain student loans, may be difficult to discharge through bankruptcy. A common misconception is that filing for bankruptcy cannot be used to discharge student loan debt. According to the Bankruptcy Code, you may be able to discharge your student loan debt if repaying it would put you through extreme hardship. The Department of Justice gave courts more precise guidelines in late 2022 regarding what constitutes undue hardship. See if you qualify for this requirement by reading our article on how to file for bankruptcy while having student loans. Our group even produced a filing tool to facilitate the cancellation of student loans.

Some Property Types May Be Lost

Giving up some pricey things could be one of the trade-offs for receiving a bankruptcy discharge in a matter of months. We refer to these things as nonexempt property. In Chapter 7 bankruptcy proceedings, the bankruptcy trustee may sell assets of this kind to satisfy creditors. Having said that, Chapter 7 cases hardly ever involve this.

Your Bankruptcy Under Chapter 7 Others Are Not Protected by Filing (Like Co-signers)

Your only obligation to pay the debt is eliminated by Chapter 7. It does not relieve someone else of their debt. The only kind of bankruptcy that can shield a co-signer is Chapter 13, but that protection is limited to situations where you pay off the debt through your repayment plan.

What Is Bankruptcy Under Chapter 13?

For those seeking a fresh start, Chapter 7 and Chapter 13 bankruptcy are both effective debt relief options. Chapter 13 (also known as the “reorganization” bankruptcy) may be appropriate for you if you have a lot of disposable income, nonexempt assets that you wish to preserve, and the ability to adhere to a payment schedule.

The Price of Bankruptcy Filing

The cost of declaring bankruptcy can be high. The two required credit counseling and debt education courses, the court filing fee, and the cost of legal representation (should you decide to retain counsel) must all be taken into account. For Chapter 7 cases, the Bankruptcy Court levies a $338 filing fee, which, unless you are granted a waiver, you must pay. The court will dismiss your case if you fail to pay the fee in full, even though you are able to request to pay it in four installments. In addition to the court filing fees, you will be required to pay the attorney fees of any law firm or bankruptcy attorney you retain for assistance. This usually adds up to roughly $1,500, and it needs to be paid before your case is filed.
The price of attending the required debt education and credit counseling courses is in addition to the filing fee and legal fees.

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Written by Canterbury Law Group

What is an Emergency Bankruptcy Filing?

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When you file for bankruptcy in an emergency, you just need to submit the bare minimum of paperwork to start the process. It facilitates speedy case filing. If you need to halt serious collection actions like wage garnishment, foreclosure, or repossession, emergency filings can be useful. You have 14 days from the date of filing to finish the remaining paperwork in an emergency bankruptcy case, or your case may be dismissed.

What Is the Process of Filing for Emergency Bankruptcy?

A bankruptcy case filed with only a portion of the necessary forms is known as an emergency bankruptcy filing. An emergency filing may also be referred to as an incomplete filing, a skeleton bankruptcy, or a barebones filing, depending on where you live. The minimal information needed to invoke the automatic stay protection is included in an emergency bankruptcy petition as required by the Bankruptcy Code.

Even in urgent situations, the automatic stay begins to operate as soon as your bankruptcy case is filed. All of your creditors are required by the automatic stay to cease pursuing collection actions against you. The automatic stay can start working even before you’ve finished filing for bankruptcy thanks to an emergency petition.

While it is possible to file for bankruptcy in an emergency situation before finishing all the necessary paperwork, doing so does not release you from filing for bankruptcy in an ordinary manner. As required by law, you have 14 days from the date of your emergency filing to file the remaining forms. If not, your case will be dropped, allowing your creditors to start pursuing collection.

Why Do Individuals File for Bankruptcy in an Emergency?

Most people file for emergency bankruptcy in order to stop a collection action that could soon be initiated. Before choosing to file for bankruptcy, many people do some research and consider their options. It may take some time to gather all the required paperwork and complete all the forms, even after you’ve made the decision to file.

The automatic stay has the power to halt additional collection attempts, but it cannot reverse already completed actions. For this reason, it’s imperative that the automatic stay be in place before there is a wage garnishment, bank levy, repossession, or foreclosure. In the event that you are unable to complete all of your paperwork prior to a significant collection event, you can file for emergency bankruptcy, which will protect you from creditors until you have completed your forms.

What is Required for an Urgent Case?

Only a small portion of the documentation needed to complete your bankruptcy filing will be needed for an emergency bankruptcy filing. You still need to fulfill a few minimal requirements in order to file for an emergency.

Select the Appropriate Type of Bankruptcy

Most people file for bankruptcy using either the Bankruptcy Code’s Chapter 7 or Chapter 13. These two types of bankruptcy were intended for different purposes and operate very differently. Chapter 7 is mainly used by debtors to get rid of unsecured debt, like credit card and medical bills. You have to make your payments on time in order to maintain your vehicle or home in Chapter 7.

Repossessions and foreclosures are frequently stopped through emergency bankruptcy filings. Chapter 13 bankruptcy typically makes more sense in these circumstances. The Chapter 13 repayment plan is often used by debtors who are behind on their rent, mortgage, or auto payments in order to catch up on these payments.

The type of bankruptcy you’re filing must be specified when filing an emergency case. Switching to a different chapter isn’t always simple if you select the incorrect kind of case. Try to arrange a meeting with a knowledgeable bankruptcy attorney if you’re unsure which chapter to file under. When you arrange the consultation, make sure to mention that you’re in an emergency.

Verify Your Eligibility

Not everyone is qualified to file for bankruptcy under Chapter 7. To find out if you are eligible for Chapter 7 relief, you will need to pass a means test. Although completing the means test calculations prior to filing is not necessary in the event of an emergency, it is a good idea in case there is a problem with your eligibility for Chapter 7.

You should also see if you are eligible for a bankruptcy discharge if you have previously filed for bankruptcy. There are waiting periods between a previous bankruptcy discharge and a new discharge mandated by the Bankruptcy Code. Depending on the chapter you filed under previously and the chapter you are filing under now, these wait times vary. The wait periods only come into play if your prior case resulted in a discharge. A Chapter 13 plan can be used to make up missed payments even if you are not eligible for a discharge because of an earlier case.

If you have previously filed for bankruptcy, there are additional restrictions that might be applicable to the automatic stay. The automatic stay usually lasts from the time a bankruptcy case is filed until it is dismissed or discharged. The automatic stay in your new case will only last 30 days if you filed for bankruptcy within the last year and that bankruptcy was dismissed (not discharged). If you want to prolong the automatic stay past 30 days, you can file a motion. Usually, you have to file the motion along with your emergency documents.

When you file for bankruptcy, the automatic stay won’t apply if you’ve filed for bankruptcy twice or more in the previous year. To enforce the stay, you can file a motion, but you’ll need to wait for a hearing and a ruling. You will not be shielded from ongoing collection actions by filing for emergency bankruptcy if there is no automatic stay in place.

Enroll in a Credit Counseling Program

Prior to filing for bankruptcy, all applicants must finish a credit counseling program from an authorized provider. This covers last-minute bankruptcy petitions. Most suppliers provide the course over the phone, online, or both. The cost ranges from $10 to $45, depending on the provider. The course is offered once, with sessions lasting typically less than two hours. A certificate will be emailed to you by the provider once the course is finished. When submitting your emergency forms to the court, you also need to submit this certificate.

Fill out the Forms That Are NECESSARY.

In order to file for emergency bankruptcy, you need to at least fill out and submit the following forms:

Form 101, Voluntary Petition: This eight-page form asks for basic details about your name, address, type of bankruptcy, and history of bankruptcies, if any.

Social Security Number Declaration (Form 121): You will only use your complete Social Security number here in your documentation. It is hidden from creditors, attorneys, and even your trustee; only the court can view it.

An alphabetical list of all your creditors along with their mailing addresses can be found in the creditor matrix. The matrix must be submitted in a specific format to the majority of bankruptcy courts. In certain courts, the list of creditors must be submitted with a verification form. To be sure of the requirements, check with the court where your case will be filed.

Obtain Your Filing Cost

For Chapter 7 cases, the bankruptcy court charges a filing fee of $338, and for Chapter 13 cases, it charges $313. When you file your case, the fee is due. You can file a motion requesting the court to allow you to pay the filing fee in installments if you are unable to pay the entire amount. When you file your emergency case, most courts require you to pay a minimum first installment. For confirmation, check with your court.

You may petition the court to have your filing fee waived if your income is less than 150% of the federal poverty guidelines. When filing your emergency paperwork, you must also file your motion for installments or a fee waiver if you are not paying the full fee.

Put In The Case

New cases can only be filed online by bankruptcy attorneys. Since mailing your forms can cause a delay, it is best to file your paperwork in person in an emergency. To locate your bankruptcy court, use the federal court locater. Certain bankruptcy districts have restrictions on where you can file depending on the county in which you reside. To verify the residence rules and office hours, visit the website of your court. Finding out if your court has any additional requirements—such as bringing specific forms of identification or extra copies of your forms—also helps. Call the court clerk if you’re unsure.

I’ve filed for bankruptcy in an emergency. What Now?

Although filing for emergency bankruptcy will provide you with some immediate relief, your work is not over. Notifying the creditor who prompted you to file the emergency case is necessary. Additionally, you must finish and submit the last of your bankruptcy forms.

Let Your Creditor Know

Notification of your emergency filing will be mailed to each creditor in your creditor matrix by the bankruptcy court. However, it may take a few days or more for this notice to reach creditors. You should give the creditor a call directly in order to successfully halt a garnishment, lawsuit, foreclosure, repossession, or other collection action. Make contact with the creditor’s lawyer if you are familiar with them rather than contacting the creditor directly. Typically, you’ll need to provide them with your bankruptcy case number, the court you filed with, and the filing date. In case there is an issue, jot down the time and person you spoke with when you called.

Fill out the remaining bankruptcy forms and file them.

You have just 14 days from the time you file your emergency documents to the time you file the remaining bankruptcy forms. Remember, fourteen days can pass quickly, so don’t wait. The remaining forms, along with instructions, can be accessed online, just like the emergency forms. For every state, Upsolve also offers a free filing guide.

The bankruptcy court will send you a deficiency notice a few days after you file your emergency case. This does not imply that the material you have already filed is flawed. It simply indicates that you haven’t yet submitted all necessary forms. A list of the forms you still need to file and the due date for doing so will be included with your deficiency notice. To ensure that the remaining forms are received by the deadline, submit them in person.

The court has the right to dismiss your case if you fail to file the last of the bankruptcy forms by the deadline. The automatic stay is lifted upon a dismissal, allowing your creditors to resume collection efforts. You can file a motion requesting an extension from the court if you require more time to file the remaining forms. Don’t ask for more time unless you absolutely need it, as courts are frequently hesitant to grant these extensions.

Following the submission of all necessary paperwork, your case will be handled similarly to other bankruptcy cases. The date, time, and location of your creditors’ meeting, along with your trustee’s contact details, ought to be included in a notification you receive. About 30 to 45 days typically pass after the date of filing. It’s likely that you’ll receive a request for documents from your trustee, which you must submit at least seven days prior to the meeting.

What Drawbacks Come With Emergency Bankruptcy Filing?
The fact that you have so little time to prepare your bankruptcy forms is the largest disadvantage of filing an emergency case. The shapes are intricate. Documents like bank statements, tax returns, and pay stubs must be gathered. Another disadvantage is that you might run into unforeseen problems with your case when filling out your other forms, like property that isn’t exempt from fees. You don’t have much time to solve problems once you encounter them.

Furthermore, even though filing for emergency bankruptcy gives you some relief, in some cases it’s only a short-term fix. For example, in Chapter 7, you have to immediately bring the payments current if you want to keep your house or vehicle. You have an extended period in Chapter 13 to make up missed payments. Regardless of the chapter you file under, you only have 30 days to bring your payments current if you filed for bankruptcy to prevent an eviction.You only submit the bare minimum of paperwork to the bankruptcy court when filing for bankruptcy emergency. When you need to halt an impending threat of collection, like a wage garnishment, foreclosure, or repossession, emergency filings can be useful. In these circumstances, you might have to file for bankruptcy quickly because you won’t have enough time to finish all the paperwork. You are protected from creditors by the automatic stay, which is activated by the emergency filing. However, you only have 14 days from the date of filing to finish all other documentation. This could be dangerous, particularly if problems arise with your case. Your case may be dismissed if the remaining forms are not submitted by the deadline.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business BankruptcyChapter 7 BankruptcyCreditor Representation, Chapter 5 ClaimsChapter 13 Bankruptcy, Business RestructuringChapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

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Written by Canterbury Law Group

What Are the Chapter 7 Bankruptcy Rules?

The most common form of bankruptcy in the United States is Chapter 7. At Canterbury Law Group, we constantly work with clients to file Chapter 7, which allows individuals to extinguish all debts which are “dischargeable” under the Bankruptcy Code. In a Chapter 7, all of the debtor’s non-exempt assets on the petition date are liquidated through the priorities set forth in the bankruptcy code. At the time of filing, the bankruptcy code establishes the creation of your “debtor’s estate” which includes all “non-exempt assets.” As a Debtor you have various duties and obligations, including significant duties of co-operation, which are owed to the Bankruptcy Trustee. These obligations are designed to assist the Trustee in the administration of your bankruptcy estate.

The Scottsdale bankruptcy lawyers at Canterbury Law Group will counsel you regarding these duties, which if followed, will make your case run smoothly. Unfortunately, many debtors who are not fully informed of these obligations run the risk of not receiving a full discharge of some or all or their debt. If you’re thinking of filing Chapter 7, here are some recommendations from our lawyers:

1. Complete the Mandatory Credit Counseling – Before you can file chapter 7 bankruptcy, it is essential to complete credit counseling. It is a mandatory step before you can file and often requires paying a fee. Otherwise, your filing will not be allowed to continue.

2. File All Chapter 7 Paperwork – Complete and file all necessary paperwork in court. Make sure all of your paperwork is accurate. Determine any fees associated with your filing.

3. Meet With Your Creditors – Approximately one month after filing the petition, you will need to meet with your creditors, an arrangement made by the court. During this important meeting, your creditors will question you regarding your finances and property. Typically this meeting involves only a few people connected with the credit card companies to whom you owe your debt. Your lawyer can certainly be present to aid you through this process.

4. Attend the Personal Financial Management Instruction Course – In addition to your credit counseling course, a personal financial management course generally costs about $30 and is necessary for completing your filing of chapter 7. If you skip the money management course, you risk dismissal of your case.

Although there are a lot of rules, Chapter 7 bankruptcy rules are not as complicated to comprehend as you might think. To guarantee a successful Chapter 7 bankruptcy filing and to gain a basic understanding of the rules, continue reading.

The local court regulations and the bankruptcy laws of the United States are combined to create Chapter 7 bankruptcy rules. The Bankruptcy Code and the Bankruptcy Rules are two distinct categories of US bankruptcy laws.

There are many of them since all bankruptcy cases are covered by these laws. But do not fret! Not all of them need to be learned. It’s a good idea to be somewhat familiar with Chapter 7 bankruptcy rules if you plan to file for Chapter 7 bankruptcy to ensure that a small mistake doesn’t ruin your fresh start.

Unofficial Guideline That All Filers Should Adhere To

Being sincere is the most crucial bankruptcy rule. The bankruptcy laws grant the “honest but unfortunate debtor” a fresh start. Even if they abide by all the other guidelines to the letter, anyone attempting to conceal anything risks punishment. Because of this, it’s crucial that you submit an amendment if you discover that something is missing from your forms.

Guidelines for Chapter 7 Bankruptcy to Adhere to Before Filing

When getting ready to file your case, there are a few easy guidelines to adhere to. To be eligible to file Chapter 7, you must complete an approved credit counseling course, use the official bankruptcy forms from the U.S. Courts, and pass the means test.

A Credit Counseling Appropriate Course Must Be Taken

Everyone is required to enroll in a credit counseling course offered by an authorized credit counseling agency at some point during the six months—180 days, to be exact—before declaring bankruptcy. You cannot file for any kind of bankruptcy without it. You must also have the United States Trustee’s approval for the credit counseling organization you select for this hour-long course.

The Official Bankruptcy Forms Must Be Used

The bankruptcy courts in the United States mandated that all individuals filing for bankruptcy, regardless of location, must utilize identical bankruptcy forms. The U.S. Courts website offers the forms at no cost. The only way to ensure that any bankruptcy forms you download are the official version is to ensure that you are downloading them from a.gov website.

Furthermore, your state’s bankruptcy court might have unique local forms. These local bankruptcy forms are not a substitute for the federal ones; they must be filed in addition to them, if necessary. Required local forms can be obtained by speaking with the clerk at your local bankruptcy court or by visiting the website of your bankruptcy district.

The Means Test Must Be Passed

Chapter 7 filing is subject to income restrictions. Using a means test, the court determines whether you are within those bounds. There are mixed feelings when one fails the means test. One the one hand, your high income precludes you from filing for Chapter 7 bankruptcy. Nonetheless, your monthly income is fairly stable, even though it might not be sufficient to meet all of your creditors’ demands for payments each month. Investigate if Chapter 13 bankruptcy would be a better choice for you in this situation.

How Is the Means Test Operational?

In essence, it establishes the income thresholds for Chapter 7 bankruptcy. You pass the means test if your monthly income is currently less than the state median income. You might still pass the means test even if your income is higher than the median. In order to file for Chapter 13 bankruptcy, you must demonstrate that your disposable income (after your living expenses and income tax withholdings are subtracted) is insufficient to pay off at least 25% of your unsecured creditors.

Chapter 7: Bankruptcy Guidelines for Following Case Filing

The automatic stay, which is a feature of the bankruptcy laws, protects you from creditors as soon as your Chapter 7 case is filed. Once a bankruptcy petition is filed, the Bankruptcy Code prohibits any further collection efforts against the debtor or their assets. Wage garnishments must therefore end immediately upon the filing of a bankruptcy case.

That isn’t the only thing that occurs, though. For the individual filing for Chapter 7 bankruptcy, their creditors, and the bankruptcy trustee managing the case, there are extra regulations.

Chapter 7: Guidelines for Bankruptcy Filers

Each individual filing for bankruptcy must fulfill the Bankruptcy Code’s requirements. Following the filing of your Chapter 7 bankruptcy case, you have the following obligations:

Apply for a fee waiver or pay the court filing fee.

Your final federal income tax return should be turned in to their bankruptcy trustee.
Attend the creditors’ meeting.
Finish the second bankruptcy course, also known as financial management or debtor education.

That is, of course, the absolute minimum. Additionally, you must work with your bankruptcy trustee. This usually entails providing them with additional paperwork in advance of the creditors’ meeting, such as bank statements. At times, this entails informing the trustee if, within six months of your filing date, you are qualified to inherit something. It all depends on the circumstances surrounding your case.

Additionally, in the event that your contact information changes, you must make sure to notify the trustee and the bankruptcy court.

What Part Does the Trustee Play in This Whole Thing?

Finding non-exempt assets that can be sold to pay off unsecured creditors is the trustee’s responsibility. This entails going over tax returns, bank account statements, and bankruptcy forms, among other documents. Asset cases remain open for as long as the trustee needs to complete them, and even after the bankruptcy discharge is approved, the filer must keep collaborating with them.

Since most Chapter 7 bankruptcy filers do not possess any nonexempt property, the trustee’s duties are restricted and frequently completed prior to the debts being discharged.

Guidelines for Handling Secured Debts

Secured debts are associated with a particular item of property. One common type of secured debt in Chapter 7 proceedings is auto loans. If you possess this kind of debt, you must file a Statement of Intentions to inform the secured creditor of your plans. That’s not all, though.

There isn’t much more to do if you are returning the car. But the Chapter 7 bankruptcy rules demand that you actually follow through on any plans you may have to redeem the car or reaffirm the loan. That typically entails signing a reaffirmation agreement or submitting a motion to redeem. The automatic stay expires and the bank is free to come pick up the car whenever they choose if you don’t act within 45 days of the date of the creditors’ meeting.

Chapter 7: Rules for Creditors in Bankruptcy

The most significant of these is the previously mentioned automatic stay found in the Bankruptcy Code. In addition, if creditors wish to object to anything in your case, they must submit their objections by a specific date. Unsecured creditors frequently take no action at all in no-asset cases. Credit card debt, personal loans, the majority of tax debt, and student loans are examples of unsecured debt.

Having a trusted legal team on your side is critical during bankruptcy. Call Canterbury Law Group today to schedule your consultation. 480-744-7711.

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Written by Canterbury Law Group

Is Filing for Bankruptcy Bad?

Is Filing for Bankruptcy Bad?

We are committed to providing accurate content that helps you make informed money decisions. Our partners have not commissioned or endorsed this content. Read our editorial guidelines here

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Bankruptcy is a legal option that can provide relief for people who can no longer keep up with their debts. While this route can alleviate an excessive financial burden, there are pros and cons of filing for bankruptcy. For instance, while it can provide you with a fresh start, it can make it difficult to be eligible for new forms of credit down the road.

 

The decision to file for bankruptcy should be considered carefully, weighing not only the benefits and the potential relief it can bring but also the drawbacks. So, what are the pros and cons of filing for bankruptcy?

 

There are a lot of misconceptions about what it means to file for bankruptcy, which can lead to unnecessary stigma.

 

For instance, there is a commonly held belief that those who file for bankruptcy are irresponsible when it comes to managing money. In reality, the high cost of medical expenses is one of the leading causes of bankruptcies.

 

Other misconceptions are that if you file for bankruptcy, you can lose all of your belongings or never be eligible for credit again. Neither of these statements is true. Your assets are often protected by federal or state exemption laws — though you may have to sell some of your belongings in a Chapter 7 case — and many bankruptcy filers are able to secure forms of credit again.

 

There are six types of bankruptcy, but the average consumer will usually file one of two:

 

  • Chapter 7: This is the most common form of bankruptcy for individuals. With this method, valuable assets are liquidated to settle debts. Chapter 7 is typically split into asset cases and no-asset cases; if you are determined to be a no-asset filer, you won’t have to give up your belongings. Chapter 7 bankruptcy can stay on your credit report for up to 10 years, starting on the filing date.
  • Chapter 13: This is the second most common form of bankruptcy that individuals file. With Chapter 13 bankruptcy, a three-to-five-year repayment plan is created. This form of bankruptcy can stay on your credit profile for up to seven years.
  • The type of bankruptcy you qualify for may depend on your income and the value of your assets. For example, to see if you qualify for Chapter 7 bankruptcy, you’ll have to take a means test to determine your eligibility. If you’re not eligible for Chapter 7, you may have to file for Chapter 13.

 

 Filing bankruptcy: The Good

While it shouldn’t be undertaken lightly, bankruptcy can be a much-needed life raft for consumers who are drowning in debt. Here’s a look at some of the benefits of filing for bankruptcy.

 

  You’re granted an automatic stay

The instant you file, you are protected under a provision in bankruptcy law called the automatic stay. Creditors cannot pursue payment of your debts or take other actions against you until the bankruptcy is discharged or a repayment plan has been finalized.

 

  You’ll get relief from dealing with multiple creditors

Filing bankruptcy can mitigate the pressure and overwhelming nature of handling numerous creditors. In fact, you may experience immediate relief once your debts are discharged and you no longer have to repay some or all of your financial obligations.

 

  You’ll receive a court-appointed representative

Once you file your petition for bankruptcy, you’ll be assigned a trustee who will see your case through to discharge. They will operate on your behalf throughout the process, including handling all communication between you and your creditors, and in the case of Chapter 13 bankruptcy, they will be the one to receive and process your payments.

 

  Bankruptcy can prevent further legal action

One of the largest benefits of bankruptcy is that you could be legally cleared of responsibility for your debt. On top of that, it could potentially prevent any future legal trouble related to the nonpayment of that debt. Keep in mind that not all debts are dischargeable, but most forms of unsecured consumer debt can be wiped out in bankruptcy.

 

  You may be able to keep some assets

In Chapter 13 bankruptcy, you are likely to be able to keep your assets as you repay your debts, but even when your assets are liquidated under Chapter 7, some valuables may be protected by federal or state exemption laws, depending on where you live.

 

  Some back taxes can be addressed

Filing bankruptcy can be an effective way to deal with back taxes, especially in a situation in which wages are being garnished. While most tax debts cannot be dismissed in bankruptcy, some older tax debts can be discharged. To be eligible, your tax debts must be at least 3 years old and must be income taxes. Fraud penalties and payroll taxes are never eligible for discharge.

 

  Bankruptcy may prevent home foreclosure or car repossession

Chapter 13 bankruptcy can be a tool to delay or stop a foreclosure or car repossession. You may also be able to keep your vehicle if it is covered under exemption laws.

 

For example, a federal exemption allows you to have up to $4,450 in equity for your vehicle. If your vehicle is worth $4,000, for example, you may be able to keep the car because it falls under a federal exemption.

 

  Your debts may be settled for less than what you owe

Your creditors will be forced to accept whatever payment is determined in your bankruptcy case, which sometimes means receiving no payment at all. If you qualify for a Chapter 7 bankruptcy, you could have all of your unsecured debts dismissed, including credit card debt, personal loans and medical debt.

 

However, Chapter 13 bankruptcy can be trickier because you may have to repay some of those debts over the course of three to five years.

 

  Some debts will be completely written off

Once your bankruptcy case is closed, any debts that are discharged are gone for good. Your creditors cannot come back and try to collect on any debts that were dismissed during bankruptcy.

 

  Bankruptcy could potentially increase your credit score

It’s no secret that bankruptcy can hurt your credit. But if your credit score wasn’t great before you filed for bankruptcy, you could potentially see an increase after your debts are discharged. Debt elimination could help lower your credit utilization ratio, which is one of the factors that determine your credit score.

 

  You can take on new credit after your debts are discharged

The process of rebuilding your credit after bankruptcy can start immediately after your debts are discharged. In some cases, individuals are approved for credit cards almost immediately after they receive their discharge order. You will face some limitations as you attempt to take on new credit, however, especially since your credit score is likely to be low. A good place to start may be a secured credit card.

 

  You’ll get a fresh start

Bankruptcy can potentially provide you with a much-needed clean slate to begin rebuilding your financial life. This new start can help consumers reestablish their credit and build healthy habits around money.

 

 Filing bankruptcy: The Bad 

Of course, filing bankruptcy also comes with many drawbacks. Given the complex nature of the process, we recommend contacting an experienced bankruptcy attorney to assist with your case.

 

  You could lose assets of value

Depending on which type of bankruptcy you qualify for, your income, the equity in your assets and other factors, you may lose your home, your car and other valuable items. Your trustee may be required to sell these items to repay your creditors.

 

  Bankruptcy can be expensive

You’ll need to cover the costs of bankruptcy, including service and court fees. The average Chapter 7 bankruptcy case costs between $1,000 and $1,750 in out-of-pocket costs, while the average Chapter 13 bankruptcy costs around $3,300.

 

  Federal student loans are exempt from bankruptcy

In most cases, federal student loans are not dischargeable; there are some exceptions, but they are rare. Instead, if you’re struggling to keep up with your federal student loan payments, you may have to look into forbearance, deferment or income-based payment plans.

 

  You may still be responsible for some debts

While most debts can be discharged, there are some debts you will still be responsible for repaying. Besides federal student loans, certain other liabilities are not dischargeable, including taxes, alimony, child support, court orders and debts incurred through illegal activity.

 

  If you have joint accounts, the other party is still responsible

Creditors can demand payment from the nonbankrupt debtor or any cosigners you have. This is an important factor to consider before adding a co-applicant to a credit application, and you’ll want to be sure your co-borrower understands this as well.

 

  You could face criminal charges if you aren’t honest

The information you provide when filing for bankruptcy will be scrutinized. If you provide inconsistent or false information, you could face legal action. It is in your best interest to be completely honest about the assets you own and any income you receive.

 

  Bankruptcy is a long process

A Chapter 7 bankruptcy moves pretty quickly and typically discharges within a few months after filing. A Chapter 13 bankruptcy, however, is a much longer process since you’ll have to follow a three-to-five-year payment plan before your case is discharged.

 

  You could lose your business

If you own a business and the trustee in your case determines it has value, you could be forced to sell it. In some instances, the trustee may operate the business until the sale is complete.

 

  You may face eviction

If you rent your home and are behind on your payments, you could be forced to leave the property once the bankruptcy is discharged. However, if you are current on your rent payments, it is uncommon to be evicted over a bankruptcy filing.

 

  You’re likely to have trouble renting in the future

You could experience difficulty renting a home after declaring bankruptcy, as some landlords or management companies may automatically reject prospective tenants who have a bankruptcy in their credit history.

 

  Bankruptcy can impact your job or career

Bankruptcy may disqualify you from holding certain positions, though it’s rare for this to happen. Filing for bankruptcy is most likely to cause trouble for those who work with money, including jobs in accounting or payroll. When you apply for a new job, a potential employer could see your bankruptcy filing during a credit check for employment since it’s public record.

 

  Your bankruptcy will be made public

Bankruptcies are publicly reported, so people you know could potentially discover that you filed. This includes if someone runs a background check on you for employment or housing.

 

  Your trustee may continue to administer your assets after discharge

Depending on the specifics of your case, the trustee may pursue the sale and distribution of your assets after your debts have been discharged. This can include any assets and income acquired within 180 days of the discharge, such as an inheritance or divorce settlement.

 

  Your credit score is likely to drop

Depending on your credit score before filing, you could see a significant drop. If you had a good credit score before you filed for bankruptcy, you may see a pretty big drop. However, if your score is already low, there may not be much of an impact on your credit score.

 

  You’ll experience difficulty gaining future credit

Your bankruptcy will follow you for quite some time. Chapter 13 can stay on your credit report for up to seven years, while Chapter 7 can remain for up to 10 years. If you apply for a form of credit and the lender runs a credit inquiry, it will be able to see your bankruptcy and may not approve your funding request.

 

  You’ll receive high interest rates and low credit limits

Even though you may qualify for new credit after filing for bankruptcy, it may come at a premium. You’re more likely to be charged high interest rates, as creditors may see you as a risky borrower, and you may only be eligible for low amounts of credit.

 

  You’ll have to wait to purchase a home

Before you can qualify for a mortgage, you’ll have to wait anywhere from one to four years, depending on the type of mortgage. If you file for Chapter 7 and plan to apply for a conventional mortgage, the waiting period is four years. With a Chapter 13 bankruptcy, you’ll have to wait two years from your discharge date.

 

  Your car insurance premiums will go up

Car insurance companies use an industry-specific credit report based on your credit file, so if you need to secure auto insurance after filing bankruptcy, your rates will likely be impacted.

 

  Bankruptcy stays on your credit report for up to 10 years

Your bankruptcy will remain on your credit report for up to 10 years from the date of discharge. While the impact will lessen over time, it can play a factor in any financial moves that require credit inquiries.

 

  It doesn’t address the cause of your financial trouble

While bankruptcy can be a solution in certain circumstances, it doesn’t fix what led to the problem in the first place. Without a solid plan in place, you could repeat your mistakes and end up needing to file bankruptcy a second time.

 

  It cannot be undone

Bankruptcy is final. You cannot change your mind once your case is finalized. This is why it’s important to fully understand what you’re signing up for when you decide to file for bankruptcy. Credit counseling — which is required when filing for bankruptcy — can help you determine whether it’s the right move for you.

 

Source

https://upsolve.org/learn/is-it-bad-to-file-for-bankruptcy/

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