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
As you are filing Chapter 7, I guess, you are including the car as well. If you are including the car, you can first file bankruptcy and then the bankruptcy trustee and your attorney will decide when to give up your car.
i am filing chap 7 alone. real estate deed is in spouse's name for > 10yrs. Motgage is joint, however. Must I list this as real property even though deed is in spouse's name?
Hi rjfrn,
I suppose you won't be able to list the property in bankruptcy as it is not in your name. You may include the mortgage in your bankruptcy. You other assets would be liquidated and the bankruptcy trustee would check if your mortgage can be paid off.
Thanks
I suppose you won't be able to list the property in bankruptcy as it is not in your name. You may include the mortgage in your bankruptcy. You other assets would be liquidated and the bankruptcy trustee would check if your mortgage can be paid off.
Thanks
hello there… filing bankruptcy has become more stressful that before…i'm facing a weird situation and hope if anyone of you can help. we've filed for bankruptcy sometime ago. my husband was working overtime during that time so that we could come up with the payments regularly. however, things have changed now. the overtime pay has stopped coming and from next month onwards he would also have a pay cut. this will leave us with barely enough for our bills and chapter 13 payments. what i want to ask here is whether or not our payments could be lowered or say reworked… thanks for your time and help.
hi jammy,
there are options in chapter 13 plan which may help you in reducing your payments. however, payments can be reduced only with the approval of the court. thus, you'll have to file a "motion to modify plan payments". your attorney will be the best person to help you with filing the motion.
however, you should note that if you've filed chapter 13 bankruptcy in order to payoff the delinquent mortgage payments, then that amount should be paid back in full. if you don't, you would lose the property. thus, the court won't reduce beyond a particular amount which is required to pay back the mortgage.
if you're paying the delinquent federal or state taxes, you'll be required to pay back the full amount of the tax liability. this will not be reduced as far as i know. if you're planning to pay off a vehicle with this plan, then it would be impossible to lower the plan payment. to lower the payments, you would have to surrender the vehicle.
take care.
there are options in chapter 13 plan which may help you in reducing your payments. however, payments can be reduced only with the approval of the court. thus, you'll have to file a "motion to modify plan payments". your attorney will be the best person to help you with filing the motion.
however, you should note that if you've filed chapter 13 bankruptcy in order to payoff the delinquent mortgage payments, then that amount should be paid back in full. if you don't, you would lose the property. thus, the court won't reduce beyond a particular amount which is required to pay back the mortgage.
if you're paying the delinquent federal or state taxes, you'll be required to pay back the full amount of the tax liability. this will not be reduced as far as i know. if you're planning to pay off a vehicle with this plan, then it would be impossible to lower the plan payment. to lower the payments, you would have to surrender the vehicle.
take care.
I just filed chapter 13 in March. I received a letter today setting a court date July 20 to release my home. How long do I have before I have to leave my home? How will I know??
Welcome julia,
If you file Chapter 13 bankruptcy, you'll be able to save your property. The lender would give you a repayment plan. If you successfully pay off the mortgage dues according to the plan, your bankruptcy will be discharged and you would also be able to save the property. I don't think you'll have to leave your home. You should speak to your bankruptcy attorney and he would be able to help you in this regard.
If you file Chapter 13 bankruptcy, you'll be able to save your property. The lender would give you a repayment plan. If you successfully pay off the mortgage dues according to the plan, your bankruptcy will be discharged and you would also be able to save the property. I don't think you'll have to leave your home. You should speak to your bankruptcy attorney and he would be able to help you in this regard.
I voluntary released my home, I had tried to sell but because of the declining area, along with drugs and violence in the area my house would not sell,except for way below what I still owe. So I filed to release it. I just received a letter stating there is a court date set for July 20 Th to start with the proceedings. Is there an estimate to how long I will have before I am forced to leave. How will I know when I need to be out by? Thank You!
Hi julia!
Welcome to forums!
A query similar to yours has been answered in the given link:
http://www.mortgagefit.com/bankruptcy/chapter7-walkaway-1.html#105305
Please take a look at it. I hope it would help you.
Sussane
Welcome to forums!
A query similar to yours has been answered in the given link:
http://www.mortgagefit.com/bankruptcy/chapter7-walkaway-1.html#105305
Please take a look at it. I hope it would help you.
Sussane
Can a person file bankruptcy if there is a court collection case pending on you? I was served with papers but was planning to file bankruptcy anyway and these came in just today.
I am getting married in a few months, will filing for bankruptcy have any affect on my future husband?
Hi,
To anonymous,
As far as I know, you would be able to file bankruptcy though you've been served with the papers of a court collection case. You should contact a bankruptcy attorney and take his suggestions on this issue.
To curious,
As you are filing bankruptcy alone, it won't effect your future husband in anyway. He would be able to get a mortgage in his name alone depending upon his credit and income.
Thanks
To anonymous,
As far as I know, you would be able to file bankruptcy though you've been served with the papers of a court collection case. You should contact a bankruptcy attorney and take his suggestions on this issue.
To curious,
As you are filing bankruptcy alone, it won't effect your future husband in anyway. He would be able to get a mortgage in his name alone depending upon his credit and income.
Thanks
Hello,
Due to my worst situation, I had to file bankruptcy. During that time, I was told that the debts co-signed by my mom would no longer remain in my name. It would be considered as her debts. However, when I checked my credit record, I discovered that the debts are still in my name. My attorney says it's supposed to be like that. Is that so?
Due to my worst situation, I had to file bankruptcy. During that time, I was told that the debts co-signed by my mom would no longer remain in my name. It would be considered as her debts. However, when I checked my credit record, I discovered that the debts are still in my name. My attorney says it's supposed to be like that. Is that so?
Hi Mike
It's great to know that you've been discharged of bankruptcy :) Congratulations!!
Though you've successfully completed your bankruptcy, your late payments and other negative items will remain in your credit history for some time. With the discharge of your bankruptcy, you do not remain personally liable for the debts, however, this does not eliminate the creditors' rights to report your past due amount on your credit report.
The negative items will remain on your credit report for 7 years. You should also note that the creditor has no obligation to remove a credit line from your credit report. In your case, you can try to make sure that each credit line on your report reflects that it was included in the bankruptcy. Your credit lines should read "discharged (or included) in bankruptcy".
Take care.
It's great to know that you've been discharged of bankruptcy :) Congratulations!!
Though you've successfully completed your bankruptcy, your late payments and other negative items will remain in your credit history for some time. With the discharge of your bankruptcy, you do not remain personally liable for the debts, however, this does not eliminate the creditors' rights to report your past due amount on your credit report.
The negative items will remain on your credit report for 7 years. You should also note that the creditor has no obligation to remove a credit line from your credit report. In your case, you can try to make sure that each credit line on your report reflects that it was included in the bankruptcy. Your credit lines should read "discharged (or included) in bankruptcy".
Take care.
Hello,
I filed chapter 7, after the automatic stay is lifted and my mortgage co. is able to go forward with the foreclosure on my house, how long does this process usually take? There was a sale date on the property before I filed. I wondered if I will get a sale date right away of will I typically have a couple of months.
Response is appreciated. Thanks.
I filed chapter 7, after the automatic stay is lifted and my mortgage co. is able to go forward with the foreclosure on my house, how long does this process usually take? There was a sale date on the property before I filed. I wondered if I will get a sale date right away of will I typically have a couple of months.
Response is appreciated. Thanks.