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,
Rather than filing bankruptcy for credit card debts, I would suggest you to contact debt settlement companies and check out if you can consolidate or settle your debts. In case of a debt settlement, your debts will be lowered by 40%-60%. In case of debt consolidation, your interest rates for paying off the debts will be reduced.
However, if you want to file bankruptcy, then you'll have to check whether you qualify for Chapter 7 or Chapter 13. If you are planning to file Chapter 7, you'll have to appear for the Means Test. If you do not qualify the means test, then you can consult your attorney and file Chapter 13.
Take Care
Rather than filing bankruptcy for credit card debts, I would suggest you to contact debt settlement companies and check out if you can consolidate or settle your debts. In case of a debt settlement, your debts will be lowered by 40%-60%. In case of debt consolidation, your interest rates for paying off the debts will be reduced.
However, if you want to file bankruptcy, then you'll have to check whether you qualify for Chapter 7 or Chapter 13. If you are planning to file Chapter 7, you'll have to appear for the Means Test. If you do not qualify the means test, then you can consult your attorney and file Chapter 13.
Take Care
how can i try to purchase something that i am filing bankruptcy on
What is the time frame after you have filed a bankruptcy that you can attach additonal debts?
Is it true that if you file Chapter 7 and you have direct deposit going into your bank and that bank holds a credit card that you enter into the Chapter 7 filing, they can still take your money?
hi,
to big jim
your question is not very clear to me. it will be better if you could provide some other details.
to bee,
you cannot add debts incurred after filing to a pending or closed bankruptcy case.
to jd,
once you file chapter 7 bankruptcy, the court declares an automatic stay and the creditors cannot recover their dues until this automatic stay is lifted.
thanks.
to big jim
your question is not very clear to me. it will be better if you could provide some other details.
to bee,
you cannot add debts incurred after filing to a pending or closed bankruptcy case.
to jd,
once you file chapter 7 bankruptcy, the court declares an automatic stay and the creditors cannot recover their dues until this automatic stay is lifted.
thanks.
After doing a lot of research, I've found this forum. Quite good I must say! Now Ive something to ask. I'm a married guy and I want to file bankruptcy. But I don't want my spouse to get affected due to my filing bankruptcy. Can a married man file without the other spouse? Hope someone of you can answer thisThanks a lot
Hi Frank,
You can definitely file bankruptcy without your spouse. You haven't mentioned whether you have joint debts with your spouse or not. If you and your spouse share joint debts, she will still be responsible for the joint debts. If all the debts for which you are filing bankruptcy is in your name, then it is always advisable that you file it alone. However, if you have joint debts with your spouse, then the discharged debts may also show up on the other spouse's credit report.
Take Care.
You can definitely file bankruptcy without your spouse. You haven't mentioned whether you have joint debts with your spouse or not. If you and your spouse share joint debts, she will still be responsible for the joint debts. If all the debts for which you are filing bankruptcy is in your name, then it is always advisable that you file it alone. However, if you have joint debts with your spouse, then the discharged debts may also show up on the other spouse's credit report.
Take Care.
Hi there… I need some good advice regarding my issue. I'm planning to file bankruptcy this year. What I can find from my online research is that I'll have to wait for quite sometime after bankruptcy to buy a house. Well…I guess my question is – Am I not allowed to purchase a house after bankruptcy? Okay…what if I put a quite a large amount of down payment??? Will that help?
Hi Rosaline
Yes, you'll have to wait for sometime before getting approved for a mortgage. In case of Chapter 7 bankruptcy, you'll have to wait for 2 years after the discharge to get a FHA loan whereas 4 years to get a conventional loan. If you file Chapter 13, then you'll have to wait for 1 year to get a FHA loan and 2 years to get a conventional loan. Though you give a good amount of downpayment, you won't get good rates when you apply for loans before this.
In my opinion, it would be better to pay off the creditors if you have the money. If you can afford a downpayment, you can also afford to pay off the creditors. Moreover, paying off the creditors will be definitely a better option than filing a bankruptcy.
Thanks.
Yes, you'll have to wait for sometime before getting approved for a mortgage. In case of Chapter 7 bankruptcy, you'll have to wait for 2 years after the discharge to get a FHA loan whereas 4 years to get a conventional loan. If you file Chapter 13, then you'll have to wait for 1 year to get a FHA loan and 2 years to get a conventional loan. Though you give a good amount of downpayment, you won't get good rates when you apply for loans before this.
In my opinion, it would be better to pay off the creditors if you have the money. If you can afford a downpayment, you can also afford to pay off the creditors. Moreover, paying off the creditors will be definitely a better option than filing a bankruptcy.
Thanks.
We filed a joint CH7 in Oct of 08. We did a reaffirmation agreement with my mortgage company. My BR discharged in 1/06 but the Lender did not file the reaffirmation agreement with the court. We continued living in the home and paying the payment until we moved. The lender is reporting a discharge with 0 balance on my report and 3 late payments on my wife's report. However, NO payment was more than 30 days late. What course of action should I take. The lender has refused to modify the credit reports to reflect proper credit history.
Hi Jim,
As there is no reaffirmation agreement between you and the lender, the lender is not liable to report your payments to the credit bureaus. It would have been better if you would have insisted your lender to sign a reaffirmation agreement when your bankruptcy was discharged. As far as the late payments are concerned, you can negotiate with your lender to remove them from your credit report.
Thanks
As there is no reaffirmation agreement between you and the lender, the lender is not liable to report your payments to the credit bureaus. It would have been better if you would have insisted your lender to sign a reaffirmation agreement when your bankruptcy was discharged. As far as the late payments are concerned, you can negotiate with your lender to remove them from your credit report.
Thanks
Do you need to have a job when applying chapter 7 bankruptcy even if you have ways of income coming in.
Hi susiehu,
It is not mandatory for a person to have a job when applying for Chapter 7. However, you should be able to pay the fees related to filing the bankruptcy.
It is not mandatory for a person to have a job when applying for Chapter 7. However, you should be able to pay the fees related to filing the bankruptcy.
Hi there…I have a question and I would like someone to answer it. My situation is unique. My bankruptcy trustee discharged everything when I filed Chapter 7 bankruptcy. At that point of time, I was not even in foreclosure. I was informed that I could keep our home. I was very happy with that decision. But alas that happiness is short lived as my lender is now demanding 45,000.00 as mortgage payments. The lender has also filed a notice of default against my property. Can I do anything to stop this?? Should I contact my bankruptcy trustee??
hi miranda,
it is not surprising to me that your lender has asked to pay the mortgage dues. though you were discharged of chapter 7 bankruptcy, you should have been current on your mortgage payments. you could have reaffirmed the debt or surrendered the property. if you had reaffirmed the debt, then you would have to make regular payments. this would have helped you in saving the property.
it is correct that you are not personally liable for the mortgage dues anymore but the lender still has a lien on it. as you have retained the property, the lender has the legal right to enforce the lien and file a notice of default against you. in my opinion, you will have to pay this or refinance your home. you can also try to negotiate with your lender so that he lowers the amount or helps you in getting a loan modification.
take care
it is not surprising to me that your lender has asked to pay the mortgage dues. though you were discharged of chapter 7 bankruptcy, you should have been current on your mortgage payments. you could have reaffirmed the debt or surrendered the property. if you had reaffirmed the debt, then you would have to make regular payments. this would have helped you in saving the property.
it is correct that you are not personally liable for the mortgage dues anymore but the lender still has a lien on it. as you have retained the property, the lender has the legal right to enforce the lien and file a notice of default against you. in my opinion, you will have to pay this or refinance your home. you can also try to negotiate with your lender so that he lowers the amount or helps you in getting a loan modification.
take care