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
If the automatic stay is lifted, the lender will immediately try to foreclose the property and get it sold off. If the lender gets a buyer, he will immediately sell off the property.
hello there…hope someone could help me with some answers. i've a unique situation. i want to file chapter 7 bankruptcy. but unfortunately i've failed the income test but passed the means test. this is because; earlier i was unemployed for which i've an unsecured debt of around $50,000 in unsecured debt and also $250,000 on a secured debt. (it's a mortgage and i guess the lender is planning to foreclose). but then, for the last two months i have had a high-paying job. what i want to know is what are my chances of getting moved to chapter 13 from chapter 13?
In my opinion, there can be two options for you – either you can dismiss your Chapter 7 or you can convert your Chapter 7 bankruptcy to Chapter 13. If you want to file Chapter 7 bankruptcy, you will have to qualify both the income test and the means test. If you fail to qualify any of these tests, you will have to file Chapter 13 bankruptcy.
You should note that having a higher-than-average income does not mean you will definitely fail the income test. As your income is high due to your present job, the trustee may think that there are chances that you will be able to pay off your creditors in the near future. But if this was a short project or assignment for 2 months and will end right after few days, then there are chances that you would qualify for Chapter 7.
You should contact your bankruptcy attorney/trustee and explain your employment situation clearly to them. They will be the best person to guide you whether or not you would be able to file Chapter 7 bankruptcy.
You should note that having a higher-than-average income does not mean you will definitely fail the income test. As your income is high due to your present job, the trustee may think that there are chances that you will be able to pay off your creditors in the near future. But if this was a short project or assignment for 2 months and will end right after few days, then there are chances that you would qualify for Chapter 7.
You should contact your bankruptcy attorney/trustee and explain your employment situation clearly to them. They will be the best person to guide you whether or not you would be able to file Chapter 7 bankruptcy.
Hi,
I live in Massachusetts and am in Chapt. 13, however am still working out an agreement with my local credit union to pay our equity loan (it has not been approved as yet by the court).
They have indicated they will settle for 20K (we owe 58K). Now with the 20K in the plan, our monthly Chap. 13 payment went up from $199 to $770, which my husband and I are fearful we can't meet. Also, my husband is aware that his division at work will be laying off since the co. is moving out of the area -- so a layoff is imminent.
My question is if we convert to a 7, what happens with the equity loan. The credit union did an appraisal during the 13, and it was determined there is 20K of equity, is it likely they would foreclose if we file chapt. 7? Also, could they place a lien on the house if they didn't foreclose? What are possibilities of working something out so our payment is dramatically lower (we do not want to exend Chapt. 13 over 5 years).
Thank you for your insight.
I live in Massachusetts and am in Chapt. 13, however am still working out an agreement with my local credit union to pay our equity loan (it has not been approved as yet by the court).
They have indicated they will settle for 20K (we owe 58K). Now with the 20K in the plan, our monthly Chap. 13 payment went up from $199 to $770, which my husband and I are fearful we can't meet. Also, my husband is aware that his division at work will be laying off since the co. is moving out of the area -- so a layoff is imminent.
My question is if we convert to a 7, what happens with the equity loan. The credit union did an appraisal during the 13, and it was determined there is 20K of equity, is it likely they would foreclose if we file chapt. 7? Also, could they place a lien on the house if they didn't foreclose? What are possibilities of working something out so our payment is dramatically lower (we do not want to exend Chapt. 13 over 5 years).
Thank you for your insight.
if you convert your chapter 13 bankruptcy to chapter 7, i don't think the lender would be able to foreclose the property. the court will issue an automatic stay on your lenders which will stop them for harassing you for the payments. once your chapter 7 is discharged, you can reaffirm the loan and pay it off.
however, if you do not reaffirm the loan, you won't remain personally liable for the loan but the lender would still hold the lien on the property. thus, he would be able to sell off the property to recover the dues. you cannot simply lower your payments under the chapter 13 plan. you'll have to negotiate with your lender and your bankruptcy trustee and check out if they are ready to lower your payments.
however, if you do not reaffirm the loan, you won't remain personally liable for the loan but the lender would still hold the lien on the property. thus, he would be able to sell off the property to recover the dues. you cannot simply lower your payments under the chapter 13 plan. you'll have to negotiate with your lender and your bankruptcy trustee and check out if they are ready to lower your payments.
My spouse and I are filing ch 7 bankruptcy. Due to poor work market, we are looking to relocate. My hours have been cut and my husband's income has been decreased by half. We own our home, and are behind on payments. We owe 119000 on home, and current market states it is worth 100000. Should we include home in bankruptcy, or look at quick sale? which would be better for our credit score? How difficult of a time should we look"forward" to in finding a home to rent?
If I file chapter 13, is my house amortization will be lowered?
hi,
to guest,
if you've decided to file bankruptcy, then you can include the house in it. if you want to save the property, then you can reaffirm your mortgage and keep on paying the dues. filing bankruptcy will affect your credit score and reduce it by 200-250. however, if it's the mortgage dues for which you want to file bankruptcy, then you should first try for a short sale. a short sale would lower your credit score by 80-100 points but you would be liable to pay the deficient amount to the lender.
immediately after a bankruptcy or short sale, you won't be able to get a mortgage. you will have to wait for 2-4 years to get a mortgage. as far as renting a property is concerned, i don't think you would face any issues.
hi rrcarp,
if you file chapter 13, you would get a repayment plan to pay off the mortgage dues. you'll have to pay off the dues according to that plan and get the bankruptcy discharged. you will get the payment plan depending upon your financial situation.
take care.
to guest,
if you've decided to file bankruptcy, then you can include the house in it. if you want to save the property, then you can reaffirm your mortgage and keep on paying the dues. filing bankruptcy will affect your credit score and reduce it by 200-250. however, if it's the mortgage dues for which you want to file bankruptcy, then you should first try for a short sale. a short sale would lower your credit score by 80-100 points but you would be liable to pay the deficient amount to the lender.
immediately after a bankruptcy or short sale, you won't be able to get a mortgage. you will have to wait for 2-4 years to get a mortgage. as far as renting a property is concerned, i don't think you would face any issues.
hi rrcarp,
if you file chapter 13, you would get a repayment plan to pay off the mortgage dues. you'll have to pay off the dues according to that plan and get the bankruptcy discharged. you will get the payment plan depending upon your financial situation.
take care.
Bumping the thread for visibility.
This needs to be a sticky thread
http://www.mortgagefit.com/inprocess/about25839.html
This needs to be a sticky thread
http://www.mortgagefit.com/inprocess/about25839.html
3 years ago my mother in law helped us buy our home under her name through a local bank. We signed a contract for deed through her saying we would make the monthly payments owed to the bank. She is now filing bankruptcy. Her title and our house title are on the same loan. She is going to reaffirm her debt for the houses. My question is will their still be liens on our home after bankruptcy? And how with the contract for deed on our home will we ever be able to put that house title in our name?
Hi binkyboo,
The lender will still hold the lien on your property though your mother-in-law files bankruptcy. As she will be reaffirming the loan, she will again become personally liable for the mortgage dues. Your can definitely transfer the property deed in your name. But you will have to inform the lender about the same and the lender may want you to refinance the loan after the change of ownership. However, as your mother-in-law has decided to file bankruptcy, it would be better if you could consult an attorney and take his opinion before transferring the property in your name.
Thanks
The lender will still hold the lien on your property though your mother-in-law files bankruptcy. As she will be reaffirming the loan, she will again become personally liable for the mortgage dues. Your can definitely transfer the property deed in your name. But you will have to inform the lender about the same and the lender may want you to refinance the loan after the change of ownership. However, as your mother-in-law has decided to file bankruptcy, it would be better if you could consult an attorney and take his opinion before transferring the property in your name.
Thanks
When you file, do they request copies of your tax returns from the IRS, and if they do, why do you have to make all the copies. That can get a little expensive.
Hey Claudia,
It's necessary for you to submit copies of all the tax returns from the IRS. It is a requirement which you need to fulfill while you are filing bankruptcy. It is better to keep the original tax returns with yourself and give the copies as you may require the original tax returns for any other purpose.
It's necessary for you to submit copies of all the tax returns from the IRS. It is a requirement which you need to fulfill while you are filing bankruptcy. It is better to keep the original tax returns with yourself and give the copies as you may require the original tax returns for any other purpose.
Hi. I am tray to get solution to my problem.
I have two propertys one is my home the other was an invertion to my and my husband. Then, the second is in foreclosure My question is this Quick claim dee to my husband protect my primary home from creditors or is better to do bankruptcy. before the foreclosure.
Thanks.
I have two propertys one is my home the other was an invertion to my and my husband. Then, the second is in foreclosure My question is this Quick claim dee to my husband protect my primary home from creditors or is better to do bankruptcy. before the foreclosure.
Thanks.
Hi Ruby!
Welcome to forums!
Filing a quitclaim deed to transfer the property to your husband may be considered as a fraudulent act. You may be penalized for it. You may file a bankruptcy and get your debts discharged through it. But you should note that filing bankruptcy will leave a negative mark on your credit report and lower your score by 200 points.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
Filing a quitclaim deed to transfer the property to your husband may be considered as a fraudulent act. You may be penalized for it. You may file a bankruptcy and get your debts discharged through it. But you should note that filing bankruptcy will leave a negative mark on your credit report and lower your score by 200 points.
Feel free to ask if you've further queries.
Sussane