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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.
Hi Carlyle,

Though you do not have equity in the property, you will still have to list the property when you file Chapter 7 bankruptcy. The estate will include all your personal or real property. It is to be noted that if you fail to list all your properties, it will only delay or possibly eliminate your right to Chapter 7 bankruptcy protection.

In order to get the bankruptcy relief for which you are filing Chapter 7, you must disclose all your assets and liabilities. You should also note that if you do not disclose all your assets, it will be considered as a fraud and will be reported to the FBI. You should make sure that you disclose all your assets, no matter how trivial they are.

Take Care.
Posted on: 14th May, 2009 03:35 am
What happens in a chapter 13 if you forget to list co-signers? does that affect your case with the trustee?
Posted on: 18th May, 2009 12:54 pm
Hi

I don't think it's gonna affect your bankruptcy case if you have forgotten to list your co-signer. It's you who've filed the bankruptcy and it's you who'll be making the payments under chapter 13. So, the co-signer's involvement doesn't seem to be too significant in this situation. Nevertheless, you should consult your bankruptcy attorney about this.
Posted on: 19th May, 2009 07:06 am
I loaned my life savings to an individual who worked as a district manager for Pirelli tires. He got sued by Pirelli and declared bankruptcy. Now he is telling me that my personal loan to him and our contract is now null and void. He says he is sorry but now I have lost everything. Is this possible?
Posted on: 20th May, 2009 05:10 am
hi

did you keep any security against the loan? or is it an unsecured loan? a chapter 7 bankruptcy may discharge him personally from the debt, but this doesn't mean he does not have to repay the loan. under chapter 7, his assets will be sold off and his creditors will be paid using the sale proceeds. i think you must get the contract reviwed by a lawyer and seek his advice on how you can make him repay your money.
Posted on: 22nd May, 2009 04:26 am
Thanks very much for responding. I do have a notarized promisory note specifying what would be done over a three year period. I think you are correct in a lawyer needing to step in and review this all. I hope I can get something back in regards to this situation. Thanks again.
Posted on: 22nd May, 2009 02:04 pm
Hi Frank,

You've taken the right decision in consulting a lawyer. An advice from an attorney will be key in your situation. After all, you've loaned your life savings to an individual and you must find a way to get your money back. Have you contacted any lawyer yet?

Thanks,

Jerry
Posted on: 23rd May, 2009 04:06 am
thanks for responding. This seems to be the solution. It now becomes a legal matter for the law to settle in some fashion. Thanks again.
Posted on: 27th May, 2009 05:03 am
Hi Frank,

You're welcome. :)

However, if there is any other query you'd like to ask, feel free to post.

Thanks,

Jerry
Posted on: 28th May, 2009 06:45 am
Hello everyone…I've a question regarding bankruptcy…hope anyone out here can answer this… I had filed for bankruptcy around 10 years ago…and the debts were discharged. But to my surprise, I found that one of the creditors have reported an account as delinquent which was discharged in bankruptcy. I got a copy of my credit report few days ago and I was surprised. Can you guys tell me if this is legal or not??? Can a discharged debt be reported again????
Posted on: 03rd Jun, 2009 03:27 am
Hi Guest

In my opinion a debt that has been discharged years ago cannot be mentioned in your credit report again. The bankruptcy which you had filed 10 years ago had wiped off the account. Along with this, the statute of limitations that would have allowed the creditor to sue you for the balance has also run out.

I would suggest you to contact your creditor and send over the proof that the debt was included in your bankruptcy. If you haven't kept the bankruptcy papers, contact the bankruptcy court. They may give you a duplicate copy of the bankruptcy papers. Fax or e-mail a certified letter to the creditor informing him that you refuse to pay the debt which was eliminated in bankruptcy. Alternatively, you can contact your bankruptcy attorney and let him deal with your creditor.

Thanks.
Posted on: 03rd Jun, 2009 03:36 am
Hi there…I've a serious issue and hope if anyone can help me…I had filed bankruptcy my bankruptcy trustee told me in the 341 meeting that I have been discharged of my debts. But to my surprise, I got dismissed because my attorney did not file my Financial Management Certificate, though it was faxed to him thrice. I've called up my attorney on several occasions but he did not answer or return any calls. How can I get this corrected or get discharged?
Posted on: 05th Jun, 2009 02:50 am
Hi Guest,

It is quite surprising to me that your case dismissed rather than closed. In most of the cases if the Financial Management Certificate is not filed, the bankruptcy case is closed without a discharge. In most of the states, laws have been passed which allows people to reopen their case, file the second certificate and receive their bankruptcy discharge. However, courts can charge a fee on the reopening of the case. As it was not your fault, I think the Judge will grant the motion to reopen the case and settle the issue.

Take care.
Posted on: 05th Jun, 2009 03:01 am
I'm self employed and I'm facing a bad situation…My creditors are calling me madly and want me to pay off the debts. This is not possible as I'm in a bad position financially. In your opinion – which chapter of bankruptcy should I file? I've threatened my creditors that I would be filing bankruptcy…
Posted on: 08th Jun, 2009 11:54 pm
you may either file chapter 13 bankruptcy or chapter 7 bankruptcy but it is not easy to file one. you will have to take the help of an bankruptcy attorney. i would suggest you to get hold of a clear estimate of how much you owe to your creditors. you may be able to sell off some of your properties and pay off the debts. this will save you from the embarrassment of filing bankruptcy.

if you're planning to file chapter 7 bankruptcy, you would have to clear the mean's test. if your income is lower than your state's median income, then you can file for chapter 7. if you qualify for it, the bankruptcy trustee can liquidate all your assets (apart from the exemptions) in order to pay off the dues to your creditors. if your income is above the state median income, you would be forced to file the chapter 13 bankruptcy which will give you a repayment plan to pay off your debts.
Posted on: 09th Jun, 2009 12:08 am
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