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Bankruptcy - A Way to eliminate or Reorganize your debts

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?

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.

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.

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.
For more details on how to declare bankruptcy, check out this information on filing for bankruptcy.

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.
  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

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

Related Forum Discussions
hi ther'm in a serious trouble and would like to know your opinion in my issue i filed chapter 13 bankruptcy around 10 years and got it discharged. one of my creditors is now trying to recharge me for a debt which i got discharged. they are also charging me for the interest!!! also they have come up with a forged loan document in my name for $50,000. this loan does not belong to me neither was my consent was taken while issuing this loan dont know whom to turn to or where to help. can you people guide me thanks in advance for your help.
Posted on: 11th May, 2009 02:16 am
Hi Denzel

I have seen lot of people complaining about the same thing. Collection agencies and finance companies may sometime take some illegal steps to recover their dues. If a debt has been discharged through bankruptcy, the creditor will not be able to collect the dues from you. It is against the federal law and you can contact a bankruptcy attorney to deal with them.

However, the bankruptcy laws have changed in 2005. But you will still be able to eliminate credit cards, collection accounts, personal loans, payday loans and car loans as before. However, domestic support obligations, loans obtained through fraud, student loans, injuries resulting from a drunken driving accident and delinquent income tax debts are not eliminated.

As far as your second question regarding identity theft is concerned, you should immediately inform your lender about the fraud. You may have to fill out a notarized fraud affidavit that indicates you never signed your name or opened the account in question. There are chances that you will have to dispute the account with the credit bureaus by providing them the fraud affidavit and other relevant information to show that you never signed for the loan.

Thanks.
Posted on: 11th May, 2009 02:33 am
read they both are property exempt, have teamster pension that is covered by erisa(myt problem is IRS backtaxes, apparently chapt 13 vcdoesn't clear it? chapt 7 doesnt either? Not sure? ray (starchaser711@cox.net)
Posted on: 17th May, 2009 04:49 pm
Hi Guest!

Welcome to forums!

As far as I know, income tax debts are dis-changeable in both Chapter 7 and Chapter 13. However, there are some criteria to get the taxes discharged. These may vary state wise. You need to contact a bankruptcy attorney and get his opinion in this regard.

Feel free to ask if you have further queries.

Sussane
Posted on: 17th May, 2009 10:20 pm
hi there…i need some clarifications to understand chapter 7. i filed for chapter 7 bankruptcy nearly 3 years ago. few days back i ran a credit check and i found that some of the creditors included in my chapter 7 filing are still shown as active, derogatory. i know that as i filed for chapter 7, all those creditors would be removed from the credit report. can you help me understand what is going on?
Posted on: 22nd May, 2009 03:16 am
Hi Suzy

This is one of the issues which most of the people face post-bankruptcy. You will have to dispute about these accounts with the credit bureaus. You can either resolve the issue online, by telephone or via mail. It is always better to resolve the issue through mail as you will get everything in writing. You need to explain the credit bureaus that these accounts were listed in your bankruptcy and therefore they should be removed from your credit report. Provide proper documents with your mail. You will have to be in touch with the credit bureaus continuously so that they remove the derogatory accounts from your credit report.

Thanks.
Posted on: 22nd May, 2009 03:23 am
We filed chapter 7, we are 5 months past due on the first mortgage, we stated on the peditation we were reaffirming the 1st. When we tried the mortgage company said we had to pay the 1st mortgage off. I filed the BK pro per.

[E-mail address deleted as per forum rules. Thanks.]
Posted on: 23rd May, 2009 09:21 am
Hi Jerry and Tracy,

You cannot reaffirm your mortgage before the discharge of Chapter 7 bankruptcy. Once your bankruptcy is discharged, your can sign the reaffirmation agreement with your 1st lender. If you do not sign the reaffirmation, you can still make payments but you'll not be personally liable for it. The 1st lender cannot force you for the payments.

Feel free to ask if you have further queries.

Sussane
Posted on: 24th May, 2009 10:15 pm
My bankruptcy was discharged few months back. However, I have two liens on my home. These liens were filed before the filing of my bankruptcy by junk debt collectors. The original debts which caused the liens were included in bankruptcy. Can I get out of these liens or remove them? How? Im planning to sell the property next year and move. Will these liens prevent sale?
Posted on: 26th May, 2009 02:36 am
Hi Guest

The liens will definitely delay or prevent the sale of your home. You may be able to remove the liens but it is always a better idea to consult an attorney. You should note that liens survive even after the bankruptcy process if you don't take special action to remove them. As your debt has been discharged but not the liens, you will need an attorney who knows your state laws well and will help you in removing the liens. Once the liens are removed, ask your bankruptcy attorney to notify the county recorders office so that negative marks are removed from the title of the property.

Thanks.
Posted on: 26th May, 2009 02:50 am
hi there…market situations are extremely bad and so i'm planning to file bankruptcy. unfortunately, i'm filing bankruptcy for the second time. i just want to find out whether i can file bankruptcy again or not? is there any rule which says that i can't file bankruptcy more than twice??
Posted on: 29th May, 2009 02:03 am
Hi Jeremiah,

It is true that the market situation is pretty bad these days but filing bankruptcy should always be your last option. You can get various other debt relief options. You can contact a credit counselor who may help you in dealing with your situation and give you other options. You can also consult a debt settlement firm. They can negotiate with your creditors so that you have to pay a lesser amount.

As far as I know, there is no such rule which clearly states that you cannot file bankruptcy more than twice. With the coming up of the new Bankruptcy laws in 2005, it is expected that the consumers should learn from the consumer budgeting and counseling. However, there are certain rules which one has to know. You can file Chapter 7 only after 8 years of your previous filing. In case of Chapter 13, the waiting period is of 2 years. The waiting period in between Chapter 7 and Chapter 13 is 4 years.

Take Care.
Posted on: 29th May, 2009 02:11 am
Hello there…I'm new to this forum and I've a question. I've heard that borrowers can file a motion for the bankruptcy case to be reopened. Is this true?? What are the grounds on which a bankruptcy case can be reopened? Suppose a consumer does not include one of the creditors in his bankruptcy filing… does it mean that the creditor can start collecting the dues from the consumer?
Posted on: 06th Jun, 2009 02:19 am
Hi RobnNick

There are various grounds on which a bankruptcy case can be reopened. The consumer may have not listed a creditor in his/her bankruptcy. The consumer can thus request the bankruptcy court to reopen the case and include that creditor. In a Chapter 7 bankruptcy, the consumer may reopen the case to file a motion to avoid a lien that he/she forgot to include in the papers. Chapter 7 can also be reopened to file Form 23 to prove that the consumer has completed budget counseling. If a consumer did not include one of his creditors in the bankruptcy, then that creditor has the right to collect the debts. You should also note that a creditor can dispute a bankruptcy discharge.

Thanks.
Posted on: 06th Jun, 2009 02:30 am
if i file chapter 7 , when do i give the car up if i;m surrendering it.
Posted on: 25th Jun, 2009 08:31 pm
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