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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.

it depends on what type of bankruptcy you are filing. it also varies from one lender to another. for instance, if you file a chapter 7 bankruptcy, you will have to wait at least 2 years to qualify for an fha loan while for a conventional loan you will have to wait for 4 years. however, you can still qualify for a loan but you will be required to pay higher interest rates. getting a credit card will also not be easy after a bankruptcy discharge.
Posted on: 02nd Apr, 2009 03:49 am
hi guest

bankruptcy will remain on your credit report for around 10 years. however, you can apply for loans depending upon the type of bankruptcy you have filed. if you file chapter 13 bankruptcy, you can apply for fha loans after 1 year of the discharge of bankruptcy. for conventional loans, you'll have to wait for 2 years.

as savior has mentioned, if you have filed chapter 7 bankruptcy, then you would have to wait for 2 years after the discharge of bankruptcy to get a fha loan and 4 years to get a conventional loan.

going for a secured credit card is always helpful in establishing credit. you may start getting credit card offers immediately after you file bankruptcy but there can be some hidden fees associated with them. so you should read all the details carefully before using the card.

Posted on: 02nd Apr, 2009 04:01 am
Hello everyone…great website I must say! I was just hoping if you could help me in some way… I am an unfortunate landlord who had leased a house to the tenants when they finished their Ch. 13 petition around 6 months ago. Well, I have been payed rent from them directly. But now suddenly from nowhere THEY are now wanting to break the lease. I have now given them a "Pay Rent or Quit" notice as they haven't paid this month. They signed a 2 year lease and I understood that my lease was outside of their bankruptcy. Will I be able to obtain a money judgment from them for damages, the remainder of the lease's rent payments, court costs, etc? Can I be able to evict them if I win an Unlawful Detainer lawsuit and most importantly will I be able to collect the dues from them?

I really need help…please…
Posted on: 03rd Apr, 2009 02:29 am
Hi Guest,

As far as I know, rent is something that could not be included in a bankruptcy. I don't think the bank would forgive them of their rent obligation. Though their bankruptcy is discharged, they would have to pay off their rent. You must have signed an agreement with your tenant while renting the property to them. This agreement must have all the rules and regulations stated clearly. You should check out that agreement and see what steps you can take when your tenants fails to pay the rent. In my opinion, you would be able to collect the dues from them.

Take Care.
Posted on: 03rd Apr, 2009 03:33 am
Our credit union would not reaffirm our loan on the van that we had. So what we did was we drove it down to their office and parked it and handed over the keys to them. It is now that they sent us a letter which states that we are late on payments. It is nearly a month since this happened. Office we are supposed to be discharge from our bankruptcy on May 25th. Do you think this is normal?
Posted on: 13th Apr, 2009 01:57 am
Hi Guest,

Did you get any type of paperwork signed from your credit union stating that they had repossessed the vehicle? I guess you haven't asked your credit union for a written document. Thus, they are telling you that you have defaulted on your payments. However, as far as I know, they will not be able to sue you as your bankruptcy has not been discharged yet and court has imposed an automatic stay. In my opinion, you should speak to your bankruptcy attorney if they are harassing you for the payments when the court has imposed an automatic stay.

Posted on: 13th Apr, 2009 02:44 am
I would like to ask this question on behalf of one of my friends…hope someone of you could answer this…My friend is planning to file bankruptcy. He has a lawsuit against him. My question, I guess is that, is this lawsuit dischargeable in bankruptcy?
Posted on: 05th May, 2009 02:38 am
Hi Guest

As far as I know, most judgments can be included in a bankruptcy and more importantly, they can be eliminated. Some common examples of judgments that can be eliminated through bankruptcy are a credit card company or car lender suing an individual and getting a judgment for the balance owed. If your friend has such kind of a judgment against him, then it can be eliminated with the help of bankruptcy.

Posted on: 05th May, 2009 02:50 am
I filed a bk in 2001, I got into tripple digit debt after and now want to know how long did I have to wait to file again? Seven years from filing, or final judgment
Posted on: 05th May, 2009 10:55 am
Hi visitor,

What type of bankruptcy did you file? Chapter 7 or 13? If you filed chapter 7, you will have to wait for at least 7 years before you file another bankruptcy and in case you filed a chapter 13, the wait would be at least of 6 years. It will be 6-7 years from the date of discharge, not the date of filing.
Posted on: 06th May, 2009 01:44 am
please help me!!! do to unforeseen circumstances, i filed for bankruptcy and now i want to refinance my mortgage to lower my payment. my mortgage company tells me that they cannot refinance while i'm in bankruptcy. i even asked them to modify the loan but they have refused. do you think i can get a plan rate reduction??? how??? also can anybody tell me whether the loan can be modified once it is in bankruptcy?
Posted on: 07th May, 2009 03:02 am
Hi Guest

As you have already filed bankruptcy, it would be difficult for you to refinance the mortgage. You'll have wait for quite some time after your bankruptcy discharge in order to refinance the loan. You haven't mentioned the type of bankruptcy you've filed for. If you have filed Chapter 13 bankruptcy, the lender will give you a repayment plan depending upon your situation and you'll have to clear the debts within 3-5 years. If you have filed Chapter 7, then you can reaffirm the debts and start paying them off. After a year, you may refinance the loan.

As far as loan modification is concerned, you may be able to do it but only after your bankruptcy is discharged. However, modifying the loan may also depend upon the discretion of the lender.

Posted on: 07th May, 2009 03:20 am
Posted on: 12th May, 2009 01:59 am
Hi Cristal,

Most people believe that they can start a business and incur debts for it. And when they are in huge debt, they can simple walk away. However, the fact is that no creditor would give money to your business without a personal guarantee.

As far as your case is concerned, I think filing personal bankruptcy is the best option for you rather than filing an LLC bankruptcy. If you file Chapter 7 bankruptcy, it will help you in eliminating your personal liability.

However, you will have to check out through means test whether you qualify for Chapter 7 bankruptcy. If you do not satisfy the asset limit, you may not be able to file Chapter 7. It would be better if you could consult a bankruptcy attorney and get to know whether you qualify for it or not. Seeking professional help is the best option for you right now.

Take Care
Posted on: 12th May, 2009 02:11 am
hello… i'm planning to file chapter 7 bankruptcy and i've questions in this regard. i have been current on my house and car payments. the property does not have much equity. the mortgage i owe on the property is more than its market value. so, what i want to ask is that when i'm filing bankruptcy will i have to list the house???
Posted on: 14th May, 2009 03:10 am
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