Posted on: 08th Apr, 2004 04:10 am
If you're in financial crisis and cannot repay your debts, bankruptcy may be the solution to your debt problems. To learn what bankruptcy is and how it may work for you, check out the bankruptcy information below:
- What is bankruptcy?
- When should you file bankruptcy?
- What is a bankruptcy discharge?
- How to file bankruptcy
- What happens after you declare bankruptcy?
- Can you keep home after filing bankruptcy?
- What debts are not discharged?
- Pros and cons of declaring bankruptcy
What is bankruptcy?
Bankruptcy helps to eliminate a part of your debts and may offer a payment plan where you pay back your debts with court supervision. When you declare bankruptcy, the court puts an automatic stay on any legal actions (collections, garnishment, foreclosure etc) taken by creditors/lenders due to non-payment of debt.
There are personal and business bankruptcies. The most common types of personal bankruptcies are Chapter 7 and Chapter 13.
There are personal and business bankruptcies. The most common types of personal bankruptcies are Chapter 7 and Chapter 13.
When should you file bankruptcy?
If you're unable to manage your debts and need to eliminate or reorganize them, you should consider declaring bankruptcy. Below are the conditions when you should declare bankruptcy.
- You're making the minimum payments on your bills.
- More than one account is in collection.
- The lender is about to foreclose on your home.
- You've recently lost your job.
- You have tried other debt solutions and they haven't worked.
What is a bankruptcy discharge?
A discharge is a court order releasing the debtors from the personal liability to pay off their debts. The discharge order is usually issued 4 months after filing Chapter 7 bankruptcy and 3-5 years after filing Chapter 13 bankruptcy (30-60 days after your final payment).
The discharge does not remove any unpaid liens placed on your property before you filed for bankruptcy due to default on a secured debt (a mortgage or car loan). So, the lender can carry out a foreclosure after the automatic stay is lifted. To avoid a foreclosure after your Chapter 7 bankruptcy has been discharged, and keep your home, you should sign a Reaffirmation Agreement (for exempt equity) and continue paying your mortgage.
The discharge does not remove any unpaid liens placed on your property before you filed for bankruptcy due to default on a secured debt (a mortgage or car loan). So, the lender can carry out a foreclosure after the automatic stay is lifted. To avoid a foreclosure after your Chapter 7 bankruptcy has been discharged, and keep your home, you should sign a Reaffirmation Agreement (for exempt equity) and continue paying your mortgage.
How to file bankruptcy
Instead of filing bankruptcy on your own, it's better to get help from an attorney who'll guide you through the process. There are 3 steps to filing for bankruptcy. They are:
- Deciding which chapter you can file for under the Means Test.
- Enrolling for Credit Counseling.
- Filing the court documents, including a financial statement.
What happens after you declare bankruptcy?
Take a look at the bankruptcy information given below and get an idea of what happens after you declare bankruptcy.
- Creditors are notified: Within 14 days of declaring bankruptcy, the court notifies your creditors about the filing. The court sends a copy of your bankruptcy petition, including a notice that the automatic stay has been put in place, the name of your trustee, and the date when the 341 creditor meeting has been set.
- 341 Meeting with your creditors: Between 20-40 days after filing, the trustee holds a 341 Meeting with your creditors. You are required to attend and answer any questions put to you under oath.
- Trustee's role: In a Chapter 7 bankruptcy case, the trustee takes a look at your assets and determines which ones your state law exempts from being sold. Any nonexempt assets are sold off to pay your debts. In a Chapter 13 bankruptcy case, the trustee negotiates with your attorney and creditors to work out a repayment plan you can afford.
- Creditors may challenge the discharge: Your creditors have 60 days from the 341 meeting to convince the court you should not be able to discharge their debt.
- Financial Management course: Under the 2005 changes to the bankruptcy code, you are required to enroll with a court approved credit counseling service within 180 days before you file for bankruptcy.
Can you keep your home after filing bankruptcy?
You'll be able to keep your home if you've filed Chapter 13. But if you've filed Chapter 7, you may or may not be able to protect the equity in your home from your creditors/lenders. There are Federal and State Homestead exemptions. If your equity is less than the exemption, then you'll be able to keep your home.
Federal and State Exemptions
Some states permit their citizens to use the Federal exemptions, while others do not. Every state court requires an individual filing for bankruptcy in their state to have lived there for at least 2 years or to have lived in that state for the majority of the 180 days before the 2 year period in order to use their exemptions.
If you have more equity in your home than the state homestead exemption allows, then the trustee will sell your home. You will get an amount equal to the exemption, and the rest will go to pay off your debts, including your court costs. If you are still paying on your mortgage, you may reaffirm your mortgage and exclude your home from your bankruptcy estate.
However, if you have sold or transferred property to another person in order to avoid losing that property in bankruptcy, then you may lose part of an exemption or have your bankruptcy petition denied.
Federal and State Exemptions
Some states permit their citizens to use the Federal exemptions, while others do not. Every state court requires an individual filing for bankruptcy in their state to have lived there for at least 2 years or to have lived in that state for the majority of the 180 days before the 2 year period in order to use their exemptions.
If you have more equity in your home than the state homestead exemption allows, then the trustee will sell your home. You will get an amount equal to the exemption, and the rest will go to pay off your debts, including your court costs. If you are still paying on your mortgage, you may reaffirm your mortgage and exclude your home from your bankruptcy estate.
However, if you have sold or transferred property to another person in order to avoid losing that property in bankruptcy, then you may lose part of an exemption or have your bankruptcy petition denied.
What debts are not discharged?
There are certain debts which cannot be discharged by filing for bankruptcy. These include:
- Student loans
- Back taxes
- Fraudulent debts
- Alimony
- Child support
- Large purchases
- Government penalty
Pros and cons of declaring bankruptcy
Filing bankruptcy gives you a fresh financial start and helps to eliminate or restructure your debts so you can manage your finances well. However, when you file Chapter 7, it hurts your credit score. But Chapter 13 has a positive effect on your score as you can repay all or part of your debts. Thus, bankruptcy isn't always bad. What's important is to understand how bankruptcy works and which Chapter would suit you the best.
Related Articles
- Keep yourself away from the common myths on bankruptcy
- Check whether you qualify for Chapter 7 or chapter 13
Related Forum Discussions
What happens if you filed Ch 7, not discharged yet, and you miss a mtg pymt? Can they force you out of your home? The home was reaffirmed.
Hi TJ,
As you reaffirmed the mortgage and missed one of the monthly mortgage payments, the lender can take serious actions against you. He can foreclose the property. I would suggest you to contact your lender and let him know about your hardship so that the lender does not take any serious steps against you.
Thanks,
Jerry
As you reaffirmed the mortgage and missed one of the monthly mortgage payments, the lender can take serious actions against you. He can foreclose the property. I would suggest you to contact your lender and let him know about your hardship so that the lender does not take any serious steps against you.
Thanks,
Jerry
If I have no equity in my house, but own my vehicle outright, can the exemption for my home in chapter 7 carry over to protect my vehicle? I need to not have a car payment... and the 2004 van is probably worth 12k or 13k on a trade. I am worried. :o
Welcome Rebecca,
While you're in chapter 7, the exemption on your home cannot protect your vehicle. If you wish, you don't have to include your vehicle in the bankruptcy filing though you mention it as one of your assets. You can pay your car payments on time and it will help you in saving it.
While you're in chapter 7, the exemption on your home cannot protect your vehicle. If you wish, you don't have to include your vehicle in the bankruptcy filing though you mention it as one of your assets. You can pay your car payments on time and it will help you in saving it.
have NO financial obligation, however, suggest we could still be liable
we have rec'd our joint debtors discharge and also the order approving trustees report of no distribution for our chapter 7.
the problem is we surrendered our house and upon attorney's advise, left it over 9 months ago after being served foreclosure papers and our attempt for a loan modification failed. we lived there for over 33 years, but with job lost and illness, we had no choice.
now that we THOUGHT it was over the bank holding the mortgage will NOT take it out of our names...however, continues to maintain the property and has agreed we have NO financial obligation, however, suggest we could still be liable if anything happens on the property. furthermore, the bank, is racking up charges AFTER our surrendering claiming until they foreclose, we would be assuming post bankruptcy charges which they suggest they will come after us for???
my response to them was to immediately LEAVE the premises and have no one step foot further onto the property until this matter is resolved. i suggested a deed in lieu as this is a different circumstance that one that has a 750k mortgage with a house now worth 200k and we are asking the bank to write off the difference....THIS situation differs.....the mortgage debt was discharged...i told the bank you can't have it two ways......
this is a government back loan...i have gone to HUD, i have gone to FHA...i have gone to the bank.....what next??? we only now have a small pension and ss to live on....and the bank says until foreclosure...which they said could take another 3 years...the house stays in our names.
HELP!!!!!!!!
ps. i posted this i think in the incorrect forum. i hope someone has the answer here
we have rec'd our joint debtors discharge and also the order approving trustees report of no distribution for our chapter 7.
the problem is we surrendered our house and upon attorney's advise, left it over 9 months ago after being served foreclosure papers and our attempt for a loan modification failed. we lived there for over 33 years, but with job lost and illness, we had no choice.
now that we THOUGHT it was over the bank holding the mortgage will NOT take it out of our names...however, continues to maintain the property and has agreed we have NO financial obligation, however, suggest we could still be liable if anything happens on the property. furthermore, the bank, is racking up charges AFTER our surrendering claiming until they foreclose, we would be assuming post bankruptcy charges which they suggest they will come after us for???
my response to them was to immediately LEAVE the premises and have no one step foot further onto the property until this matter is resolved. i suggested a deed in lieu as this is a different circumstance that one that has a 750k mortgage with a house now worth 200k and we are asking the bank to write off the difference....THIS situation differs.....the mortgage debt was discharged...i told the bank you can't have it two ways......
this is a government back loan...i have gone to HUD, i have gone to FHA...i have gone to the bank.....what next??? we only now have a small pension and ss to live on....and the bank says until foreclosure...which they said could take another 3 years...the house stays in our names.
HELP!!!!!!!!
ps. i posted this i think in the incorrect forum. i hope someone has the answer here
Welcome tobe,
I can understand your situation. You're going through a real tough time.
As you've included the property and the mortgage in your bankruptcy filing, you're not personally liable for paying the mortgage dues. The lender can foreclose the property but won't be able to come after you for the balance amount. However, unless the property is sold off, it will remain in your name and you may be liable for paying the property taxes and other dues. You should contact your lender and ask him to sell off the property asap so that you don't remain liable for paying the taxes and insurance.
I can understand your situation. You're going through a real tough time.
As you've included the property and the mortgage in your bankruptcy filing, you're not personally liable for paying the mortgage dues. The lender can foreclose the property but won't be able to come after you for the balance amount. However, unless the property is sold off, it will remain in your name and you may be liable for paying the property taxes and other dues. You should contact your lender and ask him to sell off the property asap so that you don't remain liable for paying the taxes and insurance.
can a lien on my home be nullified if i file chapter7 bankruptsy
Is there a mandatory period of time that I have to wait to file a Chapter 7 after I have been dismissed from a Chapter 13 and or a Chapter 11 ?
Hi!
Welcome to forums!
To Fancy,
A discharge in bankruptcy will be able to void the underlying judgment, but a bankruptcy discharge won't automatically remove a judgment lien from your property. If you qualify, your might be able to file a motion to avoid the lien under Section 522(f) of the Bankruptcy Code.
To Linzee,
After your bankruptcy is dismissed, you won't be able to refile bankruptcy immediately. You might have to wait for a certain time period before you can do so. You need to contact you bankruptcy attorney and he would help you further in this regard.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
To Fancy,
A discharge in bankruptcy will be able to void the underlying judgment, but a bankruptcy discharge won't automatically remove a judgment lien from your property. If you qualify, your might be able to file a motion to avoid the lien under Section 522(f) of the Bankruptcy Code.
To Linzee,
After your bankruptcy is dismissed, you won't be able to refile bankruptcy immediately. You might have to wait for a certain time period before you can do so. You need to contact you bankruptcy attorney and he would help you further in this regard.
Feel free to ask if you've further queries.
Sussane
I own my car, and I paid $3000.00 for it...will I lose my car for a Chapter 7
Hi Guest,
If the car is free and clear, then the bankruptcy trustee can sell it off in order to pay your creditors.
If the car is free and clear, then the bankruptcy trustee can sell it off in order to pay your creditors.
I want to include a vehicle that I can't afford in a chapter 7. However I have to have a car to get to work, so can I buy a cheap car prior to filing?
Welcome Guest,
It won't be a good option to buy a cheap car just before your bankruptcy filing. Purchasing property just before bankruptcy filing can be considered as fraudulent. You should file bankruptcy and get a discharge and then buy a cheap car for yourself.
It won't be a good option to buy a cheap car just before your bankruptcy filing. Purchasing property just before bankruptcy filing can be considered as fraudulent. You should file bankruptcy and get a discharge and then buy a cheap car for yourself.
I have owned my vehicle for 3 years. I purchased it for 26,000. My payments are 635.00 a month. I am unemployed and have no money. My present balance is about 10,000. I want to file bankruptcy, chapter 7. Will I have to give up my automobile?
Welcome Darryl,
You will have to list your automobile as an asset in your bankruptcy filing. If you want to save the vehicle, you can reaffirm your automobile loan with the lender and pay the dues to save it.
You will have to list your automobile as an asset in your bankruptcy filing. If you want to save the vehicle, you can reaffirm your automobile loan with the lender and pay the dues to save it.