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
Hi Guest,
As your husband's name was mentioned on the mortgage docs, he had the rights to include the mortgage debt in his bankruptcy filing. I don't think whether or not he paid the dues will be taken into consideration.
As your husband's name was mentioned on the mortgage docs, he had the rights to include the mortgage debt in his bankruptcy filing. I don't think whether or not he paid the dues will be taken into consideration.
What if I can not make the payment set? What is I discontinue the bankruptcy due to lack of ability to make the payment?
Hi grandmaconnie!
Welcome to forums!
If you cannot make the payments on time, then the bankruptcy filing will be dismissed. In that case your creditors will be able to come after you to recover their dues.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you cannot make the payments on time, then the bankruptcy filing will be dismissed. In that case your creditors will be able to come after you to recover their dues.
Feel free to ask if you've further queries.
Sussane
if i file chapter 7 will court costs from traffic violation be included??
Hi blackbunny,
As far as I know, you'll be able to include your costs from traffic violation when you file Chapter 7.
Thanks
As far as I know, you'll be able to include your costs from traffic violation when you file Chapter 7.
Thanks
How soon after ch. 7 bankruptcy can I qualify for a first time home owners loan of $85,000 ? I plan on putting $5,000 down which is 5.9%
Hi Jesika!
Welcome to forums!
After chapter 7 discharge, you'll have to wait for 2 years to get a FHA loan and 4 years to get a conventional loan.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
After chapter 7 discharge, you'll have to wait for 2 years to get a FHA loan and 4 years to get a conventional loan.
Feel free to ask if you've further queries.
Sussane
My home foreclosed a year ago or more and I'm now faced with a difficult dilemma. My home totally foreclosed and was sold in 2009. My job was lost in 2007 causing my mortgage payments to get behind, and when I finally got another job my pay was not close to that in which my mortgage was originally adjusted to. Long story short, I abandoned my home after receiving the final foreclosure notice, and now live in a family owned home. I'm now facing a hearing with the USDA next week because they started garnishing my wages claiming that I owed on my defaulted mortgage in which the home was sold for much more than amount owed. They have provided evidence that I signed a Form RD 1980-21, however the lender's name on the form is different from the lender they claimed to pay in losses. I've tried to find legal help but all want more than I am able to pay them and I make just over the maximum income level for free legal representation in SC. Now I am strongly considering bankruptcy to remedy this if it stands after the hearing. Would it do any good and stop the wage garnishment? The only property I have left in my name are my vehicles. Could they confiscate them? Any and all help will be very, very appreciated.
Hi JCM,
As far as I know, bankruptcy filing will help you in stopping wage garnishment. You can contact a bankruptcy attorney and discuss your case with him. He will suggest you as to which chapter of bankruptcy filing will help you in dealing with your situation.
Thanks
As far as I know, bankruptcy filing will help you in stopping wage garnishment. You can contact a bankruptcy attorney and discuss your case with him. He will suggest you as to which chapter of bankruptcy filing will help you in dealing with your situation.
Thanks
can back rent be filed into chapter 7,and if so once bankruptcy closes can we resume to pay our rent on time, and stay in the property
Welcome anonymous,
You can include your rental payment dues in your bankruptcy filing. However, whether or not you can resume the payments after bankruptcy discharge and stay in the property will depend upon your landlord.
You can include your rental payment dues in your bankruptcy filing. However, whether or not you can resume the payments after bankruptcy discharge and stay in the property will depend upon your landlord.
IF I HAVE HOUSE PAID OFF CAN I FILL FOR BANKRUPTCY IF YES HOW?
Hi AKB!
Welcome to forums!
Though your house is paid off in full, you will be able to file bankruptcy. You should contact a bankruptcy attorney and he will guide you further in this regard.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
Though your house is paid off in full, you will be able to file bankruptcy. You should contact a bankruptcy attorney and he will guide you further in this regard.
Feel free to ask if you've further queries.
Sussane
I stopped paying my mortgage in May of 2010 and declared Chapt 7
bankruptcy in Aug. Was cleared of my debt by December. Can the
mortgage company still try to sue me for the deficiency judgment
after my house goes under foreclosure and is sold at an aution?
Would a judge grant them garnishments. I make 8.25 an hour at 30 hours
a week and live paycheck to paycheck. I don't have any assets. The house
is in Wisconsin. I now live in Illinois.
bankruptcy in Aug. Was cleared of my debt by December. Can the
mortgage company still try to sue me for the deficiency judgment
after my house goes under foreclosure and is sold at an aution?
Would a judge grant them garnishments. I make 8.25 an hour at 30 hours
a week and live paycheck to paycheck. I don't have any assets. The house
is in Wisconsin. I now live in Illinois.
Hi Tu,
As you have filed Chapter 7 and haven't reaffirmed your mortgage, then the lender will not be able to come after you in order to recover the deficient balance after the foreclosure sale.
Thanks
As you have filed Chapter 7 and haven't reaffirmed your mortgage, then the lender will not be able to come after you in order to recover the deficient balance after the foreclosure sale.
Thanks