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Written by Canterbury Law Group

Managing Money and Avoiding New Debt During the Holiday Season

The holiday season generates months of heavier spending. While it can be reasonable to buy gifts for friends and relatives who visit on Christmas or Thanksgiving, the pressure can be high to spend a lot and buy really nice gifts. This year, American gift-givers will spend an average of $660 on gifts, according to CBS News. Although this number doesn’t seem terribly high, debt among holiday gift givers is on the rise, according to NerdWallet research.

Why Holiday Debt Can Become a Problem

Holiday spenders say that they only plan on spending roughly the same amount as they did the previous year. However, over 50 percent overspend or spend randomly without any sort of budget. Even holiday budgeters end up overspending because people don’t really limit spending during the holiday season. When there are so many “holiday discounts” being offered by retailers, it can be really hard to stop spending because you feel like you are saving money.

What all this spending leads towards is more debt, especially at the start of the New Year. In 2016, a large number of holiday spenders took on debt to finance purchases. The older generations are highly likely to borrow for gifts. Even about 40 percent of millennials borrowed cash to buy gifts during the previous holiday season. All these people then incur debt the following year.

For example, in 2016, about 24 percent of millennials who used credit cards to make purchases had yet to pay off the debt in 2017. Most people take longer than a month to fully pay off credit card debt acquired during holiday seasons.  Every month with a carried credit card balance causes interest, which adds to the debt, and the cycle continues.

Could Holiday Spending Lead to Bankruptcy?

If holiday spenders take on too much debt, especially credit card debt, it could snowball during the following year, leading to possibilities like bankruptcy. Now, a bankruptcy attorney in Scottsdale will advise that not all those in debt are eligible for Chapter 7 bankruptcy, which eliminates most unsecured debt like credit card debt. If credit card debt takes more than four to six months to pay off, the situation could end up becoming problematic.

Holiday spending on credit can pose serious risks to younger buyers in particular. Millennials are still building up credit, which means holiday spending could lead to more ill-advised purchases in the future which then creates a cycle of debt.

Avoiding the Holiday Spending Debt Trap

There are several recommended ways to control holiday spending so consumers do not end up severely overburdened. The first step is making a realistic budget that spenders can reasonably stick to. It’s recommended to keep gift purchases at about 30 percent of the monthly income. However, spenders can give themselves a break and increase the threshold just a bit, but only so as the limit is still at comfortable levels.

Then, avoiding impulsive purchases is the next step. Don’t fall prey to the holiday season advertising. Shop with a list and buy only items you need. Compare prices online to make sure you are not overspending. If it’s a good idea today, it’s a good idea tomorrow.  Don’t rush your spending.

And lastly, pay off credit card debt the following January without holding it off for longer, which will increase the interest fees on the existing debt.  Take your medicine, pay off the card, and tighten the belt in the first quarter each year, if you choose to spend during the holidays.

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How Many Times Can I File for Bankruptcy?

If you have filed for bankruptcy under Chapter 7 or Chapter 13 before, can you do the same again? Can a debtor in Arizona file for bankruptcy multiple times? It’s not uncommon for Arizonians to fall into hard times and become severely indebted once or twice. Technically, it is possible to file for bankruptcy more than once under Arizona law and the applicable federal laws. However, the law specifies certain circumstances under which a debtor can actually do that.

BAPCPA and Multiple Bankruptcy Filings

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into to effect. The law made it less easy for debtors to file for Chapter 7 bankruptcy. The idea is to prevent unwarranted practices by higher income individuals who file for Chapter 7 bankruptcy to take advantage of its debt discharge clauses. BAPCPA aimed to force rich debtors to file for Chapter 13 instead and to pay back what they owe under a court-mandated payment plan.

As a result of BAPCPA, there are now several significant limitations for multiple Chapter 7 or Chapter 13 bankruptcy filings in Arizona.

What are the Limits on Multiple Bankruptcy Filings?

Here is a list of the most significant limitations to multiple bankruptcies that debtors should be aware of:

  • Debtors must wait for at least 8 years before filing for another Chapter 7 bankruptcy. The days are counted from the day the debtor filed the first Chapter 7 bankruptcy case. From then on, the debtor must wait exactly 8 years before filing for bankruptcy under the same chapter once again.
  • Debt discharges during the second bankruptcy could be more impaired based on discharges offered during the earlier bankruptcy filings. For example, if you are filing for a Chapter 13 bankruptcy, you cannot obtain a debt discharge if you were granted an earlier Chapter 13 debt discharge in the previous two years. If you have obtained a debt discharge under Chapter 7 in the previous 4 years, then you can’t get a Chapter 13 discharge for a new case. However, this doesn’t prevent you from being able to file for a Chapter 13 bankruptcy.
  • You can file for Chapter 13 bankruptcy regardless of how many bankruptcies you have filed before. There are certain circumstances, such as owning too much mortgage debt, that allow debtors to do this. Chapter 13 filings are accepted even for issues like needing a payment plan to pay off taxes owed.
  • Filing for Chapter 13 bankruptcy, regardless of precious bankruptcy history, enables automatic stay on a current debt between three to five years. However, the court must be specifically requested to enforce the automatic stay if you have had a bankruptcy dismissed by the court during the previous 12 months.

The above limitations are not too restrictive when it comes to filing for another bankruptcy. If your case is complicated, you must consult with an experienced Arizona bankruptcy attorney. Keep in mind that you may not be able to keep filing for Chapter 7 bankruptcy in rapid succession as per the recently amended rules and regulations.

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Do I Become Ineligible for a Home Loan After Filing for Bankruptcy?

Filing for bankruptcy could affect your life in both positive and negative ways. The main negative in declaring bankruptcy is that the debtor’s credit score will take a major hit. While it’s very much possible to restore a bad credit score, many consumers do wonder what it means for immediate financial assistance requirements. For example, if you don’t own a home and have filed for bankruptcy, does that mean you are ineligible for a mortgage now and for how long?

The question is not easy to answer. Personal circumstances and specific situations can matter. It’s best to first get advice from a qualified bankruptcy lawyer in Scottsdale. However, consumers can also get a general idea of obtaining a home loan following bankruptcy by reading this article.

Qualifying for a Home Loan Following Bankruptcy

There are no legal barriers to qualifying for a home loan following a bankruptcy declaration. A lender cannot deny you a mortgage based solely on the fact that you have filed for bankruptcy once. Lenders will use other underwriting factors to determine your eligibility.

A consumer’s ability to get a home loan following bankruptcy is determined largely by the credit score, monthly income, down payment levels and the remaining savings. Keep in mind that mortgage lenders require a down payment on the loan. If you have no trouble paying for the down payment, then you can quite often also qualify for the loan. If not, you should at least be able to pay 20 percent of the down payment right away. The higher the down-payment one can offer a lender, the higher the chance that your mortgage loan will close and fund on the date of purchase.

How Bankruptcy Affects Credit Scores and Eligibility for Home Loans

You should expect your credit to plummet by at least 120 points if you file for bankruptcy. All of the credit monitoring companies scan the bankruptcy dockets every day to watch consumers.  After you are discharged from your bankruptcy case, you will need to soon start rebuilding credit to prevent going into the negatives. If you start repaying remaining debts that survived your bankruptcy, your credit score will rise without a problem. Rehabilitating credit in this manner is the best option you have for being qualified for a subsequent home loan. Even if your credit score is low, if you can show the lenders that it has been improving, then your mortgage application may receive more favorable treatment during the loan application process.

How to Improve Your Chances of Obtaining a Home Loan Following Bankruptcy

First of all, you should take steps to get your credit score back up. If you filed for Chapter 13 bankruptcy, sticking to the monthly court-approved payment plan should do it. Otherwise, you can get a credit card and make timely payments without missing a single payment due.  Pay on time, each and every month.

Start saving. You should certainly expect to spend some time-saving money before you can apply for a mortgage. Let your savings accumulate so you have enough to at least partially cover a down payment. The more savings you have, the better your application will look.   You can get friends or family to help you accumulate down payment funds as well, so long as they are willing to sign off and release those funds to you in writing.

Don’t forget to repay existing loans such as student loans, taxes owned, or child support. Always continue to timely pay your regular bills on time as well.

What matters is that you maintain a good financial profile by not falling back into the previous circumstances that caused you to file for bankruptcy.  Time is your friend.  After a bankruptcy, the longer you have come through and demonstrated a strong credit history and ability to pay—the mortgage lenders will start to consider you again for home mortgage loan qualifications.

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How to Cope with the Stress of Fighting a Bankruptcy Case

No one really wants to be in a situation where they have to file for bankruptcy. It can be immensely stressful to go through with the proceedings. If you have trouble managing stress while you are petitioning for bankruptcy, here are several tips to help you reduce the mental burden:

Don’t Hesitate to Ask Your Lawyer the Tough Questions

Bankruptcy cases can be particularly stressful because the law involved in these cases can be quite complicated. Don’t be confused and or angered about the issues raised. If you have questions, ask your bankruptcy attorney in Scottsdale. A good lawyer will be more than happy to help you with whatever questions you have. Your attorney is also the best person to explain how the law applies to your unique situation. You will feel much better after you have spoken to your attorney regarding the tough parts of your case.

Think About Positive Aspects of Bankruptcy

Yes, it may seem impossible to look on the bright side of filing for bankruptcy, but there really is one. Bankruptcy can actually be good for you. Think about all the good things happening. For starters, your creditors can no longer harass you with never-ending phone calls. You are no longer avoiding debt issues. Some of the debt you have, like credit card debt, can be dismissed by the court depending on under which chapter you file.

Chapter 7 bankruptcy is considered the “best plan for debt elimination” because the court discharges most types of unsecured debt under this law.  The court will order a credit plan to pay back whatever remaining debt you have. So when the court proceedings are done, you will mostly be debt free!

Sleep Properly

Do not stay up late worrying about your case; let your attorney handle that part. Try to get at least 7 hours of sleep each night when the case is proceeding. If you are sleep deprived, you will feel even more stressed out. A good night’s sleep can clear your head and prepare you mentally to navigate your case.

Educate Yourself about Issues Involved

Your attorney may not have time to explain every little thing about your case to you. In this situation, you can always go online and read about the basics of filing for bankruptcy litigation. If you don’t understand what Chapter 7 or Chapter 11 bankruptcy is, there are plenty of resources online (and also on this blog) that will help you understand the process involved. Don’t hesitate to do your research. When you are educated about the laws involved, the case will seem a lot less complicated to you. That should relieve most of your stress issues.

You can also read blogs about people who have overcome debt after filing for bankruptcy. Reading about the experiences of others will help you overcome yours better.

What’s more stressful than going through with a bankruptcy case? Crushing debt. Once the case is over, your debt will be largely be gone too. So think about the positives and don’t dwell on the negatives until your case concludes and you are fully discharged.  This too shall pass.  

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The Benefits of Filing for Bankruptcy

Most people perceive bankruptcy as a dreadful thing, like a complete end to financial stability and future prospects. This is a rather misguided notion of bankruptcy. Filing for personal bankruptcy does have its benefits other than reaching a legal solution to overwhelming debt. Don’t believe it? Read below to find out:

Stop the Never-Ending Collection Calls

One of the major positive aspects that follow declaring personal bankruptcy is the definitive end to collection calls. In Arizona, creditors are legally obligated to stop attempting to collect the debt when a debtor has filed for personal bankruptcy. Your creditor won’t be able to call you, try to foreclose your home, notify your employers, or do anything else to attempt to collect your prior debt. If the creditor harassment continues, you will have a good case for your bankruptcy proceedings. You should contact a bankruptcy lawyer in Scottsdale to find out what your options are if credit harassment continues.

Keep Your Home

Arizona law allows exemptions for homesteads or the primary residence owned by a debtor. The court will not make you homeless and take away your shelter when you file for personal bankruptcy. So it’s a sensible way to try to save your home from debtors. This exemption has a dollar and equity limits and certain exceptions that you should clarify with a lawyer. But filing for bankruptcy will stop a creditor from foreclosing your home.

Protect Personal Assets

The Arizona bankruptcy law allows many personal property exemptions when filing for bankruptcy. That means you would be able to keep valuable assets like books, furniture, cheap motor vehicles, various electronic gadgets, family antiques, clothing, pets and so on in your possession. Creditors will not be able to claim these as collateral.  They are prohibited from taking your things.

Stay in Control of Business

Chapter 11 bankruptcy allows business owners control of their company even after filing for business bankruptcy. So it’s a good way to keep a business afloat when the debts threaten to run your company to the ground. The Chapter 11 bankruptcy also facilitates business owners to reduce debt gradually over time.  Chapter 11 can also aid in getting rid of high-stakes litigation by discharging the pending litigation claims that were previously being waged against your company.

Retain Your Pension Fund and Retirement Assets

You can retain your considerable IRA or other types of qualified retirement plans or pensions when you file for bankruptcy. It’s one another valuable personal asset that will be kept away from the debtors. Put another way, you will exit bankruptcy with virtually identical retirement assets as when you went into bankruptcy.

Start Improving Your Financial Status

When you file for bankruptcy, your credit score would hit rock bottom. But afterward, it will start to climb up again, sometimes rapidly. Filing for bankruptcy is sort of the last step towards regaining financial footing and security. After that, it only gets better. When you start to make debt payments, your credit score would start rising again.  Many creditors are attracted to persons coming out of bankruptcy and offer them credit because they know that the person cannot file another bankruptcy for many many years.

Have a Trustee Oversee Your Monetary Affairs

During your bankruptcy, the court appoints a Trustee between you and the creditors to oversee how the discharge on your bankruptcy filing is being carried out. This spells only good things for your future financial dealings. If pursuing a chapter 11 or 13, you will get a handcrafted debt repayment plan to get back on your feet after the declaring.   If pursuing Chapter 7, most if not all of your debts will be canceled.

Above all, you will feel less stressed. Your money matters will be taken care of, and the creditors will finally go away.  Consider speaking with competent bankruptcy legal counsel today.

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Who Can File for Chapter 12 Bankruptcy?

Most people are familiar with Chapter 7 and Chapter 13 bankruptcy. Chapter 12 is a special type of bankruptcy clause that allows a specific group of financially “distressed” debtors to file for bankruptcy.

Unlike Chapters 7, 11, or 13 bankruptcies, which most individuals or businesses in debt can apply for, Chapter 12 bankruptcy is specifically reserved for family farmers or family fishermen under the Bankruptcy Code, which the state of Arizona adheres to. The eligible parties can propose a repayment plan for the debt to pay off creditors in five years or less. In this sense, Chapter 12 bankruptcy is similar to Chapter 13.

Chapter 12 doesn’t allow for the automatic discharge of some debts like Chapter 7. However, a judge will review all debts and determine if any are eligible for a legal discharge. Let’s look at who is eligible to file for this type of bankruptcy:

Only Fishermen and Farmers with Regular Income are Eligible

The Bankruptcy Code specifically states that the fishermen or farmers who qualify for Chapter 12 bankruptcy must have what is termed as “regular annual income.” This clause exists because debtors who file a petition must agree to a repayment plan that requires some sort of income. However, income for some farmers and fishermen is almost always seasonal. The law takes this into consideration and does allow relief if needed. You will need a competent bankruptcy attorney in Phoenix or in your local area to ask for a regular income reprieve.

Categories of Farmers and Fishermen

The family farmers and fishermen are specified in the law under several categories. A “family farmer” or a “family fisherman” could be an individual or a spouse of en eligible individual, or a business entity like a partnership. The individuals must have a professional in commercial fishing or farming to be eligible. The total debt the petitioner is seeking relief from should not exceed $3,237,000 for farmers or $1,500,000 for fishermen.

A majority of the debt in question should be related to farming or fishing. For fishermen, this is least 80 percent, and for farmers, the threshold is at least 50 percent. Also, a majority of more than 50 percent of the income of the petitioner must come from farming for fishing operations for the preceding tax year. For farmers, this must be true for two or three preceding tax years.

Filing as a Corporation

Fishing and farming corporations or partnerships are eligible for Chapter 12 bankruptcy too. There are, however, stringent considerations that determine which types of business entities are eligible. The businesses must be family owned, and more than one-half of the equity or stock in the business must be owned by a single family or its blood relatives.

The corporation or the partnership must be run by family members and relatives. A majority of 80 percent or more of the value of the entity must come from farming or fishing related activities. There are limits to indebtedness levels as well just like for individuals. Also, the business cannot publicly trade stocks after filing for bankruptcy.

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Consulting with a Bankruptcy Attorney

Before you file a bankruptcy petition, you must consult with a competent bankruptcy attorney. In fact, you should do this while even contemplating bankruptcy. The attorney would be able to tell you whether bankruptcy is the best option for your financial situation and the best timing to file. When you are consulting with a bankruptcy attorney, here is what you should ask and seek answers for:

Tell the Lawyer Briefly about Your Financial Situation

When you meet up with your bankruptcy lawyer in Scottsdale, be 100% honest with them regarding your financial situation. Do NOT withhold the truth for any reason.  If you haven’t hired the lawyer, you don’t have to give details of your debts. However, a brief overview will be necessary. Tell the lawyer what type of debt you have, your income situation, and why you think you are unable to repay your loans on time. The lawyer should be able to tell you then whether bankruptcy is the suitable next step for your financial situation.  If you lie to your lawyer, you could face criminal prosecution in your underlying bankruptcy case later because he or she would be defrauding the court.  The truth the truth and nothing but the truth, because your bankruptcy is filed under penalty of perjury.

Ask the Lawyer if He or She is willing to be a Negotiator

Before you file for bankruptcy, you can try negotiating with creditors. Bankruptcy is not the ideal scenario for either debtors or creditors. Some creditors may be willing to cut down the interest rate or extend the repayment plan. If you are worried about your credit score, negotiating is better than going to court. You can inquire about the pros and cons of bankruptcy from your attorney. It’s important to make sure it’s the best solution for your financial problems before proceeding.

Inquire about Different Types of Bankruptcy

The Bankruptcy Code allows for different types of bankruptcy petitions. You may have heard of some of these already, like Chapter 7. While Chapter 7 is the most common type of petition for individual debtors, it may not be the only one. If you belong to a higher income category, you may have to file for Chapter 13. If you have a family business in fishing or farming, you may be eligible for Chapter 12 bankruptcy. Ask your lawyer about which type of bankruptcy petition best suits your situation.

Check Your Eligibility to File a Petition

If you have filed for bankruptcy before, you may not be eligible to file again. For example, if you have declared Chapter 7 bankruptcy in the past, you will not be eligible for the same type of petition for about 6 to 8 years depending on what state you file in. There could be other factors, like income and alimony that make you ineligible to file for bankruptcy or at least the type of debt relief you seek. Therefore, you will need to ask the attorney to find out if you are eligible to file a petition and which chapter might get you the best debt relief.

Learn about Fees and the Process

Filing for bankruptcy is not expensive, but there will be court fees involved. Learn about these fees from the lawyer. Also, ask the lawyer to explain the general process of filing in your local jurisdiction. You will have to discuss representation fees and consultation fees as well. Bankruptcy attorneys are limited in how much they can charge as per Arizona law.  You typically get what you pay for.  The $99 down bankruptcy ads on TV are usually highly misleading.  Most bankruptcy filings, no matter who you hire, require several thousand dollars to file and complete.

If your consultation goes successfully, you will be able to proceed with your petition.  Consider contacting us to consult to discuss your needs.

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Chapter 7 Bankruptcy Exemptions in Arizona

The Bankruptcy Code is governed by federal law, which means that many aspects of bankruptcy such as the “automatic stay” apply similarly regardless of the state the petitioner lives and files in. However, it’s important to know that Arizona has legally opted out of many federal bankruptcy exemptions under the code. So people who file for bankruptcy in the state can obtain exemptions only according to state laws. This particularly pertains to property exemptions. State bankruptcy exemptions work similarly for both Chapter 7 and Chapter 13 bankruptcy in the state. If you are filing for a Chapter 7 bankruptcy, read below to find out which exemptions you may qualify for in the state:

Residential Property and Homestead Assets

Arizona’s homestead exemption allows debtors to exempt up to $150,000 equity value from any real property considered a home. Other real property may also qualify if it falls within Arizona’s homestead laws. The exemption is the same for single as well as married couples. You will have to contact a lawyer regarding which of your real properties can be exempted under the homestead exemption clause in the state.

Certain Types of Personal Property

The courts allow debtors to get exemptions for various items that can be considered “personal property.” Your personal property includes items you own like clothes, computers, guns, furniture, books, pet animals, musical instruments, health aids, and wrongful death awards among others. The state allocates a specific amount of each personal property as exemptions. For example, Chapter 7 petitioners can exempt up to $2,000 for a wedding ring. You should refer to Ariz. Rev. Stat. §§ 33–1123, 33–1125 and 33–1127 for more information, or ask an experienced bankruptcy lawyer.

Deposits

A debtor filing for bankruptcy can exempt up to $300 from deposits in one bank account. If you have multiple bank accounts, contact a bankruptcy attorney in Scottsdale to find out how you can obtain exemptions.

Motor Vehicles

Arizona has very specific exemptions for motor vehicles for Chapter 7 bankruptcy. The courts allow debtors to exempt up to $6,000 equity for each vehicle owned. Elderly petitioners or their elderly or disabled spouses can exempt up to $12,000.  Again, consultation with your legal counsel is essential.

Retirement Benefits and Pension Funds

Under federal rules, qualified retirement plans such as 401ks and IRAs, which have tax-exempt status, are also exempt in bankruptcy proceedings. Arizona upholds this rule. In addition, debtors who benefit from any type of state employee pension plan can obtain exemptions. Amounts will vary depending on the type of plan you have.  So let’s say you have $200,000 in retirement assets, you can still file and procure a bankruptcy discharge and still own your $200,000 in retirement accounts post-discharge.

Life Insurance Benefits

Up to $20,000 in life insurance that could be paid to a child or a living spouse can be exempted when filing for Chapter 7 bankruptcy. Cash surrender value will be considered for exemptions. Similar exemptions can be obtained for insurance plans that cover ill health, accidents or disability. Insurance claims for damages or destruction to property that is exempt will also be exempted from proceedings. There are many insurance exemptions, but there are also exceptions. It’s important to ask a highly qualified lawyer whether your insurance benefits can be exempted under Chapter 7 bankruptcy proceedings.

Child Support

Arizona exempts all child support or alimony payments from discharge when filing for bankruptcy. So filing for bankruptcy is not a valid reason to not pay court ordered alimony or child support.  You are your estate (after you die) will owe child support and alimony for life—and even then, your estate will be compelled to pay.

Fraternal Benefit Society Benefits

If you claim benefits from the Fraternal Benefit Society, they will all be exempted under Arizona law. To find out more about exemptions you can get when filing for Chapter 7 bankruptcy, contact an experienced bankruptcy lawyer or call Canterbury Law Group at 480-744-7711.

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Busting Common Myths about Arizona Bankruptcies

Filing for bankruptcy anywhere can be stressful. However, if you are neck deep in debt, and if bankruptcy seems like the best path to take, you shouldn’t hesitate to do so. Some people hold back on filing for bankruptcy and sorting out debt because of many misconceptions. Here is a brief list of common myths surrounding bankruptcy and the actual truth which dispels them.

Chapter 7 Bankruptcy Erases All Debt

Under both Chapter 7 and Chapter 13 bankruptcy rules, some debt will be discharged by the court. This does not mean that all debt will be “erased” by the courts. For example, discharge is not granted for certain debt like owed child support, spousal maintenance, penalties owed for criminal or civil cases, certain tax debt, and for all secured debt. What will actually happen when you file for Chapter 7 bankruptcy is that the court will review your case, and the judge will discharge a certain amount of unsecured debt. Then, the court will oversee a payment plan for you to pay back all remaining secured or exempt debt.  Will you walk away from bankruptcy with substantially less debt—yes, all debt gone—not always?

The Creditors Can Claim My Car and House

This is a common myth surrounding filing for bankruptcy and it’s largely not accurate. The courts allow bankruptcy petitioners to keep family homes and main modes of transportation under exemption rules. Even if your house is tied up in debt, you can claim an exemption of up to $150,000 out of the total equity value of your home. You can also get up to $6,000 worth of exemptions for each motor vehicle you own. Also, Arizona’s homestead laws further protect family homes. There are no recent known cases where an Arizonian bankruptcy court uprooted a family from their home over an unpaid debt. The courts are largely in favor of debtors keeping their shelter. To find out more about exemptions your property or vehicles might qualify for, contact a local bankruptcy lawyer in Scottsdale.

The Bankruptcy Court will Inspect My House

The bankruptcy court does not demand that anyone go to the debtor’s house and go through his or her possessions. The petitioner is expected to voluntarily list all possessions (under oath) when presenting the necessary paperwork. If the debtor has lied, the creditor’s lawyer will point it out to the court. There are no inspections of any sort involved absenting a willful fraud on the court by the applicant.

Filing for Bankruptcy Disqualifies Me from Applying for Credit Cards and Loans

Debtors that file for bankruptcy are not automatically disqualified from obtaining credit cards or loans like car loans. Certain types of bankruptcy, like Chapter 7 bankruptcy, discharges unsecured debt like unpaid credit card bills and personal loans. Once you have been declared bankrupt, your credit score will be lowered. Some loans will not be available for you based on this low credit score. However, as soon as you start repaying remaining debts, your credit score will come back up again quickly. In the meantime, you will be able to qualify for secured credit cards or loans even after you have filed for bankruptcy.

Also, when you have filed for personal bankruptcy once, you have to wait at least 6 years to file for personal bankruptcy in the state again. Creditors know this, and some actually prefer to lend to formerly bankrupt clients because of this knowing that they will not return to the bankruptcy court for years to come.

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When Should You File for Bankruptcy?

Of course, filing for bankruptcy is not easy on anyone. The filing process can go smoothly if you have a good lawyer. What’s really difficult is deciding when to file for bankruptcy. Does your financial situation actually call for you to throw in the towel? This article will help you understand which situations call for declaring personal bankruptcy:

Do a Self-Assessment of Your Situation

No one knows your financial situation better than you. So, when deciding to file for bankruptcy, you should do a self-assessment of your financial situation. Even if you feel like your debts are unbearable, you may not necessarily be in the danger zone that calls for declaring bankruptcy. There are several indicators that you are in serious financial trouble. Here is a short list:

  • You get constant debt collection calls
  • You are unable to, and have not recently made, minimum payments on credit cards
  • You don’t know the size of your debt
  • Your family home is at risk of foreclosure due to a debt
  • You have to borrow money to pay for necessities
  • You get a lot of red notices in the mail
  • Your creditors are threatening legal action

If you answer yes to three or more questions above, then you are seriously in debt. If you are unable to pay for everyday necessities without using credit cards or borrowing money in another manner, then you are definitely in the financial danger zone. You could consider bankruptcy as a possible solution.

Consider Alternative Routes

Filing for bankruptcy will lower your credit score significantly. Therefore, it’s not something that should be done frivolously. First, consider if there are alternatives to bankruptcy you can consider. Try calling your creditors and renegotiating the terms of your loans. Most creditors prefer if debtors don’t go bankrupt as a judge could erase the unsecured debt. It’s very likely that the creditor will be able to come into new favorable terms with you.  You can also consider selling stuff around the house to find funds to repay loans. It’s possible that you are spending money unnecessarily, so a household budget adjustment may solve your problems. Exhaust your alternatives first, and then decide to file for bankruptcy.

Consult with an Attorney

If you are really not sure about doing either of the above, you can always consult with an attorney for professional advice. Find a local bankruptcy attorney in Scottsdale or other cities in the state. Most will be willing to hold a consultation for a lowered fee. The state of Arizona does pose limits on how much a bankruptcy attorney can charge so money may not be an issue.

Know What Types of Debt You Owe

Are your debts mostly because of secured loans, unsecured loans, unpaid taxes, or fees due like alimony? Some debts, like taxes and child support, cannot be wiped out by filing for bankruptcy. If you owe a lot of unsecured debt, like credit card debt, then filing for Chapter 7 bankruptcy is a good option.

It all depends on the type of debt you owe, and your income level. Before you file for bankruptcy, make sure you are eligible for it. You may also want to ask your attorney whether a certain type of debt can actually be forgiven by a bankruptcy court.

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