Recently on our bankruptcy forum a user asked, “I have heard for years that I need a three to six-month emergency fund which can cover my living expenses., I have very high student loan debts, a $10,000 credit card bill and secured assets which are costing me a great deal of money. What are your thoughts? Should I pay off my debt or start to save for my emergency fund?”
Recently on our bankruptcy forum a user asked, “I have completed all the requirements for my bankruptcy filing. Now I find out that I have to complete a Pre-Discharge Debtor Education Course. I am wondering why I have to do this and why the government makes everyone jump through so many hoops to file for bankruptcy protection.”
Recently on our bankruptcy forum a user asked, “I am in a financial crisis. My spouse has divorced me, I need to find a job, and I am suffering from a severe medical condition. I have not worked in years, and I am scared. Additionally, I have over $50,000 in medical debts. I am thinking that my only option might be to file Chapter 7 bankruptcy. Do you have any bankruptcy tips for me or things I need to consider before I file?”
Filing bankruptcy is a very important decision. Unfortunately, because the stigma of filing bankruptcy has declined, many filers now file bankruptcy without considering the financial and long-term ramifications of their decision.
Bankruptcy is not for everyone. In fact, most debtors should find alternative means to resolve their financial crisis. Let’s look at six of the top things you need to consider before filing for bankruptcy protection.
Recently on our bankruptcy forum a user asked, “I took out a loan for $20,000. I lost my job and I have not been able to repay the loan company. I have tried contacting them and seeing if they will accept less than the amount owed, but they will not budge. Now they are threatening to take me to court. What are my options?”
There has been a lot of confusion and questions about reaffirming a loan for a secured asset during the bankruptcy process. This article is an attempt to help you better understand the reaffirmation process while going through the bankruptcy process. Continue reading
Is there any such thing as removing court ordered judgments after filing bankruptcy? A similar question was recently asked on a bankruptcy forum website about two judgments where a creditor filed judgment liens against a debtor’s house after obtaining court ordered judgments for failure to pay back money for the use of their credit cards. The debtor wanted to know if he had to file some other forms to remove the court ordered judgments or whether or not filing a Chapter 7 bankruptcy would do away with the such matters. Continue reading
One of the most common questions on our bankruptcy forum is, “Can I qualify for bankruptcy?” This question is important, but equally important is whether or not you should file for bankruptcy. This blog will address who can qualify for Chapter 7 and Chapter 13 Bankruptcy and also what considerations should be made prior to filing for bankruptcy protection.
Can I file Chapter 7 Bankruptcy?
If you are an individual, married couple, corporation or partnership you might qualify for Chapter 7 Bankruptcy. If you file Chapter 7 Bankruptcy your qualifying, unsecured debts can be immediately discharged. In 2005, however, bankruptcy laws were updated to make it much tougher for debtors to qualify for Chapter 7 Bankruptcy.
How do you know if you can file Chapter 7 Bankruptcy? Prior to filing Chapter 7 Bankruptcy you must pass a means test and prove that either your income is less than the median income for your state or you do not have enough disposable income to repay your debts. There are several online calculators that can provide general information about whether or not Chapter 7 Bankruptcy is an option for you.
Can I file Chapter 13 Bankruptcy?
If you cannot file Chapter 7 Bankruptcy you might wonder if Chapter 13 bankruptcy is an option. Chapter 13 Bankruptcy is available to all United States citizens; however, the debtor’s outstanding unsecured debts must be less than $307,675 and secured debts must be less than $922,975.
Chapter 13 Bankruptcy does not liquidate debts immediately but allows you to create a 3 or 5 year debt repayment plan. Because you will have to make regular payments to your Chapter 13 debt repayment plan the bankruptcy court will expect that you will have an income. If you do not have a job it will be difficult to prove that you can make the necessary debt payments.
Due to the complexity of filing Chapter 13 Bankruptcy most debtors consult with a bankruptcy lawyer prior to filing. It is not necessary to have legal help, but a bankruptcy lawyer can help
debtors review their assets and liabilities, create their Chapter 13 Bankruptcy schedules, file the Chapter 13 Bankruptcy petition and develop the Chapter 13 debt repayment plan.
Is filing bankruptcy right for me?
Another really important question that each debtor should ask is, “Is filing bankruptcy the right decision for me?” Bankruptcy will negatively impact your credit score and will remain on your credit report for 7 to 10 years. Bankruptcy may also make it difficult to make large purchases on credit or to get a loan with a good interest rate. Debtors should evaluate all of their other debt repayment options before filing bankruptcy.
Next, each debtor must understand what bankruptcy will and will not do for them. For instance, if your debt is unsecured debt: credit cards, medical bills, or unsecured personal loans, filing bankruptcy may discharge your debts or allow you to restructure your debt payments. If your debts are mainly child support, federal student loans or tax debts filing bankruptcy will not eliminate these debts and may not be the best choice for you.
Chapter 13 bankruptcy is one of the two common types of bankruptcy used by individuals. Unlike Chapter 7 bankruptcy that can eliminate an individual’s debt altogether, Chapter 13 bankruptcy is a debt reorganization and debt consolidation plan.
Debt consolidation as a part of a Chapter 13 bankruptcy means that you will submit to a bankruptcy court a payment plan for your debt based on what you can afford to pay. The payment plan may run for as long as 60 months and would consolidate the various payments you owe into a single payment.
The debt consolidation works because the terms of the payment plan—the length, the interest rate, the total amount owed—are structured so the individual is paying less money each month—an affordable amount of money based on their income—than they were before filing for Chapter 13 bankruptcy. If the bankruptcy court accepts your debt consolidation payment plan, you simply make the payments for the term of the plan.
What happens if your situation changes during the debt consolidation payment plan period of a Chapter 13 bankruptcy and you can no longer afford to make the payment amount agreed upon with the bankruptcy court in your debt consolidation payment plan? This change could be because your income has decreased as the result of a job change or other factors, or your expenses could have increased as a result of unexpected medical bills or other issues outside of your control.
If you find that you can no longer meet the obligations as a part of your Chapter 13 debt consolidation payment plan, you have two primary options.
Modifying your Chapter13 Bankruptcy Payment Plan
If you are unable to make the payments under your payment plan for a good reason, such as a job loss or other change to your income, the bankruptcy court may modify your payment plan to match your new circumstances.
If your change is such that continuing to make the payments under the Chapter 13 bankruptcy creates an undue hardship, for instance, you are hospitalized, the bankruptcy court may discharge your debt altogether, which means you do not have to continue to make any further payments under your plan.
Filing for Chapter 7 Bankruptcy
If your income or expenses have changed and you can no longer make the minimum payments necessary as a part of a Chapter 13 bankruptcy, you may also be able to your bankruptcy into a Chapter 7 bankruptcy. As noted above, Chapter 7 bankruptcy provides additional debt relief, not offered by filing Chapter 13 bankruptcy, because the Chapter 7 bankruptcy can immediately discharge many types of unsecured debts without a debt repayment schedule.
To change to a Chapter 7 bankruptcy, you simply need to qualify for the Chapter 7 bankruptcy by passing the means test and you cannot have declared Chapter 7 bankruptcy within the previous eight years.
Keep in mind that the information above is general in nature. If you can no longer afford to make payments under your Chapter 13 payment plan, you need to take action by working with a bankruptcy attorney. A bankruptcy attorney can help evaluate the best option for your specific situation and work with the bankruptcy court to implement your new plan.
- Are There Good Reasons Not to File a Chapter 7? (betterbankruptcy.com)
- Bankruptcy Spectrum and Protecting Individual’s Assets (betterbankruptcy.com)
- In Debt, Filing Bankruptcy May Not Do These 4 Things For You (betterbankruptcy.com)
- Can a Bankruptcy Court Take Payments Out of Your Unemployment Checks? (betterbankruptcy.com)
A Chapter 13 bankruptcy is commonly called a wage earner’s plan. It is a type of bankruptcy most individuals can file requiring you to design a pay back plan with your disposable monthly income to pay your unsecured creditors. During the plan, all secured debts will be expected to be paid on time and up to date.
The plan can be designed to pay all or a portion of your debts over 3 to 5 years, depending on the amount of your disposable income. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If your income is more than the state median, the plan is normally for five years. In no circumstances can a plan be for more than five years. Any unsecured debts still existing at the end of the pay out plan will be discharged.
What happens in a Chapter 13 if your income increases or decreases during the plan period?
Basically, if your income decreases for some reason through no fault of your own, and you cannot make the planned monthly payments to the bankruptcy trustee, you must petition the bankruptcy court to alter your payment plan to account for the loss. Otherwise, you run the risk of getting your bankruptcy dismissed if you cannot make the payments on time.
If your income is lowered enough to bring your total family income below the state median, there exists the possibility you can convert you bankruptcy to a Chapter 7. It would be wise to consult with a bankruptcy lawyer before you convert to consider all the ramifications for converting.
One recent question about increasing your income came from a debtor on a bankruptcy forum website who got a small raise, less than 3%, and an increase in tips. She was in a Chapter 13 plan, and her question was, “In bankruptcy, will increasing your income affect a Chapter 13 plan?”
She was afraid her meager earnings would be quickly gobbled up by the bankruptcy trustee, and she felt like she needed the cost of living raise to compensate for the rise in the cost of living. She also felt like the increase in tips might be temporary as they often are. She also wanted to know whether or not she was required to turn in the increase.
Bankruptcy laws require the woman to turn in any change of income to the bankruptcy court, or for that matter, any other kind of financial change that may occur during a Chapter 13 plan. It is not likely the bankruptcy trustee is going to be interested in such a meager and unstable increase in income. The raise was a cost of living raise and the increase in tips would have to hold up for a long period of time to make any difference.
A Chapter 13 plan is one of the harder types of bankruptcies to file because the bankruptcy laws governing it are complicated, and it requires an ongoing disciplined maintenance of the plan once filed. By filling out the form below, we can help you find a bankruptcy attorney in your area who can help design a Chapter 13 plan for your particular circumstances.