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Bankruptcy filings - Why and how to file bankruptcy

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 15th Oct, 2006 09:39am
When you consider bankruptcy as a way out of debt problems, make sure you're quite clear about why you're filing it. To know whether filing bankruptcy is the right decision and how to file for bankruptcy, take a look at the following topics:


Should I file bankruptcy?


Here are the 11 reasons why you should consider filing bankruptcy.
  1. Creditors not willing to negotiate: Bankruptcy filings make sense when your creditors are not willing to negotiate and offer an alternative payment plan. The creditors may ask for full payment without extending the payoff period. In such a situation, there's no way but to file bankruptcy.


  2. Your liabilities exceed your assets: This is a big reason why debtors file bankruptcy. It is sometimes seen that the monthly payment amount exceeds your monthly income. In such a scenario, bankruptcy filing is a good choice.


  3. Your wages are garnished: If your creditors/lenders have received judgment against you for garnishing wages, filing for bankruptcy can stop the garnishment. Through this, you can partially recover your garnished wages.


  4. Unsecured debts: If most of your debts are unsecured debts such as credit cards, medical bills and the like, you can get rid of them by filing chapter 7 bankruptcy.


  5. High debt amount: Bankruptcy filings make sense if your total debt amount excluding mortgage and car loan is much higher than what you can pay in the next 5 years or so.


  6. Your accounts are in collection: If you're receiving harassing calls from collection agencies who're charging more than you owe, the only way to stop them quickly is to file Chapter 7 bankruptcy.


  7. Late payments: You may have more than 30 day late payments on more than one account. Bankruptcy filings can help you wipe out the dues or pay them off.


  8. No insurance for medical bills: When you have unpaid medical bills with no insurance cover to pay them off, filing bankruptcy can be the right choice for you.


  9. No savings at all: If you don't have any savings left, and cannot pay down debts with your income, the only option left is to file bankruptcy.


  10. Creditors have filed a lawsuit: In case your creditors have filed a lawsuit, you shouldn't ignore the summons. Otherwise, creditors can obtain a default judgment from the court along with the permission to seize your assets or garnish your wages. Bankruptcy filings prevent such judgments from being issued against you.


  11. Foreclosure or repossession: If you cannot afford to pay for the mortgage anymore, chances are that the lender may foreclose. Again, in case you have taken out a car loan and you're unable to pay it off, the lender can repossess your car. Bankruptcy filings put an automatic stay on foreclosure or repossession. However, you may have to reaffirm the debt once you receive discharge.

How to file bankruptcy Chapter 7


Instead of filing bankruptcy on your own, it's better to take help of an attorney who'll guide you throughout the process. Check out the 4 steps on how to file chapter 7 bankruptcy.
  1. Determine if you should file Chapter7: If your financial situation is worse and there's no way you can pay down any debt, Chapter 7 may be the right option. However, if you have some income, but cannot afford payments as agreed, you may consider filing bankruptcy Chapter 13.


  2. Credit Counseling: As per the Bankruptcy Law, prior to bankruptcy declaration, a debtor has to enroll himself/herself into a credit counseling program. The credit counselor must be approved by the US Trustee's office. The purpose is to help you understand if at all you need to declare bankruptcy.


  3. Means Test: Prior to filing bankruptcy, you'll have to pass through the Means Test, which helps to determine if you are eligible to file bankruptcy Chapter 7. If you fail to pass through the Test, you may file Chapter 13.


  4. File your documents: You'll have to prepare a list of your past and present debts, assets, liabilities along with the statement of your financial situation. These documents are then filed with the bankruptcy court for which you'll have to pay a fee.

How to file for bankruptcy Chapter 13


Chapter 13 bankruptcy filings are almost similar to that of Chapter 7 except that the debtor should submit a payment plan which will help him repay all or part of his debts within the next 3-5 years. This plan can be submitted either on the date of bankruptcy filings or within the next 15 days.

The Chapter 13 plan should clearly explain how the debts will be repaid along with the exact repayment period. Thereafter the trustee and the lender review the plan and give the approval. The plan may also be rejected.

How often can you file for bankruptcy?


You can file Chapter 7 every 8 years after a previous Chapter 7 filing and 6 years after filing bankruptcy Chapter 13. However, Chapter 13 can be filed every 2 years from a previous Chapter 13 filing and 4 years from filing bankruptcy Chapter 7.

Bankruptcy filings help you to wipe out debts or restructure payments. However, it affects your ability to obtain future credit (though Chapter 13 has a positive impact), buy a home or even acquire a suitable job. Therefore, you need to consider all aspects of your financial situation prior to filing bankruptcy.
Posted on: 15th Oct, 2006 09:39 am
my mom quit deeded her house to me a year ago, but she has a life estate at the house. i want to know if i try out chapter 7 or 13 bankruptcy filings, will i risk losing her house? also, bankruptcy filings are possible while owning this quit deed? there is no mortgage on the property. property is valued at $90,000 and i want to file a chapter 7 on $20,000 in debt.
"can I even file for bankruptcy while owning this quit deed"
Bankruptcy filings may be your option here but you need to talk to your mom about it, as there is life estate on property which allows your mom to have absolute right to occupy the property till she dies.
Posted on: 15th Oct, 2006 08:56 pm
Hi Seaghost,

Welcome to the forums.

"I want to know if I file for chapter 7 or 13 bankruptcy will I risk losing her house?
"
When you file Chapter 7, you need to list assets and liabilities which are non-exempt so that you can use them to pay off outstanding debts. But the exempt properties remain with you. It is better if you can consult an attorney regarding which of your assets will be taken as exempt or non-exempt.

If you file Chapter 13, you may be allowed to keep your home with you and also your personal property. Your debts will have to be paid off by a repayment plan approved by the court.

Thus, you do have a fair chance of keeping your home with you. But whether you can file for Chapter 7 or 13 will have to be determined through the Means Test as stated by the Bankruptcy Law enforced in 2005.

Get a fair idea of the Bankruptcy Law and Means Test and know more on How to Check if you qualify for Chapter 7 or 13.

Thanks,

Caron.
Posted on: 15th Oct, 2006 09:27 pm
Hi seaghost,

You may not lose your home if you can protect your home with the help of homestead exemption. Know more on Homestead Exemption from a previous discussion.

Thanks,

Sara.
Posted on: 15th Oct, 2006 10:38 pm
I say wouldn't it be good if you can look for a mortgage to pay off the $20,000 debt instead of filing for bankruptcy.
Posted on: 16th Oct, 2006 11:48 am
Hi there!!! I will be filing bankruptcy due to some medical bills which I has to incur in the past and also due to some credit card debts. Are these type of debts erased completely by bankruptcy??? Can you tell me what type of debts are normally erased by bankruptcy???
Posted on: 19th Jan, 2009 02:28 am
Hi Guest,

Yes, bankruptcy can be used to erase the medical bills and credit card debts. However, in my opinion, rather than filing bankruptcy, it will be better if you can go for a debt consolidation. You can contact any debt consolidation company and consult with their financial coach. I know of a debt consolidation company - "debtconsolidationcare.com". You can visit their website and speak to their financial coach and they may suggest you ways to pay off the debts.

Debts other than back taxes, student loans, alimony, fraudulent debts, child support and government penalty can be discharged off by filing bankruptcy. To know more about bankruptcy, check out the following link:
http://www.mortgagefit.com/bankruptcy.html

Thanks,

Jerry
Posted on: 19th Jan, 2009 02:40 am
Hi there…I am distressed and I'm getting confusing information from different people. Hope someone out here is able to help me…Can any of you guys tell me whether co-signers are protected in case someone files bankruptcy??? I am filing bankruptcy…But the problem is my sis is a co-signer for my property. So will my creditors try to collect debts from my sis if I file bankruptcy??? I just hope that she does not gets affected by my bankruptcy filings…Anybody out there…help please…Thanks
Posted on: 21st Jan, 2009 01:58 am
hi guest,

you haven't mentioned the type of bankruptcy you are planning to file. in case of chapter 7 bankruptcy, the creditors will have the right to demand payments from your cosigners. but in case of chapter 13 bankruptcy, as there is a payment plan, your creditors cannot collect any payments from your co-signer unless it becomes clear that the plan is not sufficient to pay the entire owed amount.

in my opinion, it would be better if you can consult a qualified lawyer while setting up your repayment plan in case of chapter 13. you should also note that you can covert chapter 13 to chapter 7 but then your creditors will have the right to demand payment from your cosigners.

thanks.
Posted on: 21st Jan, 2009 02:10 am
In the recent few months things have worsened for me… I had taken a mortgage on my property, got married and was living happily but then the markets tumbled and I lost my job…I cannot pay my mortgage payments and other debts which also includes my student loans… I cannot afford to pay any of this now… I am planning to file Chapter 7 so that I can get my debts eliminated. But I get conflicting information about student loans. My question is: Can I get rid of student loans if I go for Chapter 7 bankruptcy filings?
Posted on: 23rd Jan, 2009 02:24 am
Hi guest,

As far as I know, student loans cannot be cannot be included in Chapter 7 bankruptcy. So getting rid of the student loans in not possible. In that case, you will have to pay it off to the lender.

However, if you file Chapter 13, you will be able to include the student loan in your bankruptcy filings. But you will have to repay the lender according to new re-payment plan given to you by the lender.

Thanks,

Jerry
Posted on: 23rd Jan, 2009 02:47 am
Recently, one of my friends came to stay with us as he was facing a tough time living with his family. He will stay with us until he gets an apartment of his own. He does not contribute money to the household. I do not demand money from him either as he is going through a bad phase of his life. But what concerns me is that he has changed some of his billing address to my current address. His credit card bills also comes to my house. I'm planning to file bankruptcy in March. So my question is…will this effect my bankruptcy filings??? He is not a part of our household and will stay for a few days with us.
Posted on: 27th Jan, 2009 02:29 am
Hi Guest,

As far as I know, your friend's changing address will not affect your chances of filing bankruptcy. You will be able to file bankruptcy without any problem. But I would like to say that there are various ways to avoid bankruptcy. You can check them out in the given link:
http://www.mortgagefit.com/bankruptcy/avoid-bankruptcy.html

Moreover, you may check out the options of debt consolidation or debt settlement if you are filing bankruptcy for unsecured debts.

Thanks.
Posted on: 27th Jan, 2009 02:45 am
Need some expert help…I'm in a tough situation I guess. My current home is in foreclosure as my lender (crappy people) did not work with me to restructure my loan. If they would have restructured it…I would be able to pay off the loan. So here I am waiting to file bankruptcy…But guess what, I found a website that says that bankruptcy is the wrong way to go and you should always try settlement first. So what do you think…Should I go for bankruptcy filings?
Posted on: 18th Mar, 2009 03:48 am
hi guest

in my opinion, bankruptcy filings should be the last option in any case. it remains on the credit report for 7-10 years. moreover, your credit will also get lowered by 200-250 points. i would suggest you to speak to the lender and try to negotiate with him for a loan modification in order to save the property. you can also contact a loan modification expert to help you in negotiating with the lender. however, if the lender is not ready to modify the loan, then you can go for chapter 13 bankruptcy filings in order to save the property.

in case, you feel like selling the property, you can go for a deed in lieu foreclosure. in a deed in lieu of foreclosure, the deficient amount resulting from the sale of the property will be forgiven.

thanks.
Posted on: 18th Mar, 2009 03:58 am
Hi there...planning to file bankruptcy due to severe financial crisis…Can anybody tell me how long will I have to wait after declaring bankruptcy before I am able to get a mortgage? Does it vary from bank to bank...???One more question…can I get a credit card after filing bankruptcy??? I have heard it is a good way to re-establish one's credit.
Posted on: 02nd Apr, 2009 03:30 am
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