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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.
I am currently with a debt collection agency and not able to afford the payments can I still file bankruptcy or am I stuck pauing it off thru them?
Posted on: 10th Jun, 2009 08:39 am
Hi Tracie!

Welcome to forums!

As you cannot afford the payments, you can definitely go ahead and file bankruptcy. Contact a bankruptcy attorney and discuss your situation with him. He will suggest you whether to file Chapter 7 or Chapter 13 bankruptcy.

Feel free to ask if you have further queries.

Posted on: 10th Jun, 2009 10:40 pm
Should I file bankruptcy in order relieve myself from the back taxes? I simply want to eliminate these back taxes. I owe a lot to the IRS and I'm currently out of a job. Do you think filing bankruptcy can help me?
Posted on: 12th Jun, 2009 02:08 am
Hi Saira,

There are certain taxes which can be discharged through bankruptcy filing. However, there are certain conditions which you need to follow. Income taxes can be discharged if you had filed for bankruptcy. If you've committed a fraud or willfully evaded the payments, then your taxes will not be removed. The debt should be at least 3 years old. Also, you should have filed for a tax return for that specific debt two years prior to filing for bankruptcy. You will also have to pass the "240 day rule," i.e. the IRS should have assessed the income tax debt at least 240 days before your filing for bankruptcy.

Other taxes which do not fall under the above qualifications are considered to be "priority taxes". These taxes are not 100% dischargeable. Tax debts that are assessed within 240 days before the bankruptcy case was filed will not be dischargeable. You'll have to pay them in full. In such cases, you can also try to set up an Installment Agreement with the IRS. This will help you in paying off your back taxes in a 3-5 year period.

Take Care.
Posted on: 12th Jun, 2009 02:40 am
we've incurred a lot of debts. thus, i and my husband have filed for chapter 7 bankruptcy. the present value of our property is now around $294,000. we've a first mortgage of $290,000 and a second mortgage of around $110,000. our second mortgage lender had approved us got a loan modification before we filed for bankruptcy. but as we filed for bankruptcy they rescinded the approval. after this, we haven't paid our mortgage dues for the last three months. can they try to foreclose our property?
Posted on: 03rd Jul, 2009 02:31 am
Hi Debbie

It would have been better if you could have completed the loan modification process first and then filed for bankruptcy. Now, as you've filed for bankruptcy, your lender may not want to work with you and will wait for the court's order.

However, most of the second lenders do not foreclose the property though you're upside down because it will not help them in any way. If the second lender forecloses the property, he'll have to first clear off the mortgage dues of the first lender. Thus, there are chances that if the second lender forecloses the property, he may not get anything from the sale of the property.

As you've already filed for bankruptcy, I think the second lender may ask you to sign a "reaffirmation agreement". This is an agreement with the lender which will make you personally liable for the second mortgage dues. The second lender may also ask for a court approved reaffirmation agreement in order to modify your loan after bankruptcy. You should consult your bankruptcy attorney before signing any agreement with your lender. The attorney will be the best person to tell you what steps you need to take in order to deal with your second lender.

Posted on: 03rd Jul, 2009 02:47 am
Hi there…due to the market situations right now, I'm facing a tough situation and now I find no other way but to file bankruptcy. My question is that do I need to qualify for filing bankruptcy?? Is there a chance that my bankruptcy filing would be denied??? I've heard there's something called credit counseling. What is it??? And lastly, how much would bankruptcy cost me? Sorry for multiple questions…I'm pretty new to this and don't have much idea about this. Thanks for any help...
Posted on: 07th Jul, 2009 02:30 am
Hi Jason,

There are certain criteria which you need to fulfill if you want to file bankruptcy. I guess you want to file personal bankruptcy. In such a case, you'll have to decide whether you want to file Chapter 7 or Chapter 13. If you want to file Chapter 7, you'll have to qualify under the Means Test. If you don't, then you can file Chapter 13. Also, you'll have to undergo a mandatory credit counseling course before filing bankruptcy.

Credit Counseling Course is a mandatory counseling which makes the consumer aware of the other options that he/she has apart from filing bankruptcy. This counseling should be approved by the U.S. Trustee's office. Also it should be completed within 180 days before filing bankruptcy. This counseling session will help you evaluate your financial situation as well.

There are certain conditions on which your bankruptcy filing can get dismissed. If you hide certain facts from your bankruptcy trustee intentionally, then your case may be considered as a fraud and it can be dismissed. If it is found that you have taken debts by lying about your income, then your case may be dismissed by the bankruptcy court.

As far as I know, in order to file Chapter 7 bankruptcy, you will have to pay fees of around $299. If you're filing Chapter 13, you'll have to pay $274. Apart from this, you'll have to pay your lawyer's fees as well.

Take care.
Posted on: 07th Jul, 2009 03:19 am
Is it true that keeping my payments current is same as reaffirming the mortgage??? I would also like to know that if I don't reaffirm the mortgage will it get discharged in bankruptcy??? I've recent filed bankruptcy and Im getting conflicting answers from attorneys.
Posted on: 10th Jul, 2009 01:42 am
Hi Guest

When you file Chapter 7 bankruptcy, normally the mortgage debts get discharged. However, if you sign the reaffirmation agreement with your lender, then you again become personally liable for the mortgage dues. Once you reaffirm the mortgage, you'll have to make regular payments towards the mortgage dues. If you don't make timely payments, the lender will have the right to foreclose the property.

If you sign the reaffirmation agreement, then the lender would report the payments to the credit bureau which will help you in improving your credit score. If you do not sign the reaffirmation agreement but keep on making the payments, the lender may not report it to the credit bureaus.

Posted on: 10th Jul, 2009 01:58 am
Hello…I'm filing bankruptcy due to some credit card debts and some medical bills. I want to know that if we file for bankruptcy, will it affect our business? I don't wish to include my business in bankruptcy. Can I do that??
Posted on: 14th Jul, 2009 02:17 am
I owe 34K in credit cards. not behind in any pmts. but need help. SS is only 1339. mth Home is worth 44K Car 4,000. I have no other means of support.
Posted on: 27th Sep, 2009 09:46 am
Hi Annette,

A question similar to yours has been answered in the given page:

Please have a look at it. I hope it will help you.
Posted on: 27th Sep, 2009 11:12 pm
Posted on: 19th Oct, 2009 04:52 pm

Welcome to forums!

You can download the bankruptcy forms from the internet. You can check out the given page which may try to help you in downloading the paperwork: "".

It is always a better option to contact a bankruptcy attorney and take his help in filling out the bankruptcy paperwork. If you hire an attorney, he would look into the matter and help you to decide which chapter is best for you.

Feel free to ask if you've further queries.

Posted on: 19th Oct, 2009 11:49 pm
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