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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.
Do you have pro se paralegal company's to do all the paper work and docs ?
How much ?
Posted on: 18th May, 2010 02:21 pm
Hi Randall,

If you want to file bankruptcy, then you should contact a bankruptcy attorney and take his opinion in this matter. The charges of the attorney can vary. He will check out your financial situation and let you know which chapter of the bankruptcy filing will be best suited for you.

Thanks
Posted on: 18th May, 2010 10:47 pm
a person should be able to keep their car if filing chapter 7 bankruptcy in florida shouldn't they?
Posted on: 28th Sep, 2010 01:35 pm
Hi sunny,

If the person has a car loan, and if he or she reaffirms the debt with the lender when he or she is in Chapter 7, then the person will be able to save his car.

Thanks
Posted on: 28th Sep, 2010 10:40 pm
Can I file bankruptcy with just the credit cards and medical bills that I owe and not my vehicle? Also if I file would i be able to get approved to get an apartment after filing???? Also If my credit card bill went to a collections agency and they are offering to settle for just less then 1/2%, should i do that and will it come off of my credit report If i were to settle??? Thank you
Posted on: 30th Sep, 2010 08:27 am
i was divorced after 9 year marriage on 3/27/09. i was in extreme debt because of the divorce and was forced to file chpt 7 bankruptcy-it was discharged in may 2009. my first mortgage owed is $429,000 w/payment of $2,386 a month-not on bk nor reaffirmed- my second is $90,000 w/payment of $586 a month-that got put on bk (not at lawyers nor my request-we think it was the bank's error) these are two separate banks. i have attempted 3 times this yr and attended a public workshop to get both loans modified, but because i was not yet behind they would not even help even though i more than qualify under the obama plan. recently my ex-husband has filed chptr 7 bk including both the mortgage loans and stated that the home was quitclaimed back to me at 0 profit (it was my childhood home in the first place!) my job is somewhat secure (26 yrs) but i will be having a few paycuts due to furlough days and possible medical costs so my income will be less in the very near future. on top of that, my three grandkids have been homeless and the parents want me to take temporary custody - i have the room, i just need the financial help in order to feed, cloth, provide medical and continue to pay my utilities and mortgage payments - i am trying to quickly get set up as a foster care grandparent with the state to assist me with that. the question i have; since both my ex and i have now filed chptr 7 bk on the 2nd mortgage with that amount of money still owed on the first (home current value is approx. $430,000) what would the odds be that the second mortgage bank would foreclose on the home i need to have to raise the kids in now if i quit making the monthly payments to the second? right now the $568 would help with food and utilities until i can get set up. please advise this working single grandparent raising 3 teens.
Posted on: 30th Sep, 2010 03:54 pm
Hi ginabina,

You will be able to file bankruptcy in order to get rid of your credit cards and medical bills. However, immediately after your bankruptcy filing, you will not be able to get a mortgage for buying an apartment. You can go for a settlement with the credit card company in order to get rid of your credit card bills. However, it will be your creditor's discretion whether or not he would remove the negative item from your credit report. Normally, a negative item remains on the credit report for the next 7 years.

To Guest,

The second mortgage lender will have the rights to foreclose in order to recover the dues. However, as there is a first mortgage on the property, if the second lender forecloses it, he will be liable for paying the dues of the first lender before satisfying his own dues. So, in most cases, the second lender does not foreclose the property.

Thanks
Posted on: 30th Sep, 2010 11:41 pm
i own a property and it does not have a mortgage on it. it is residence for my mentally ill father. it is one of the main reasons i can not file chapter 7 bankruptcy. can i deed it to someone else and then be able to file bankruptcy?
Posted on: 07th Oct, 2010 05:51 pm
Hi silas,

You cannot file bankruptcy immediately after deeding the property to someone else. After you transfer the property, you'll have to wait for at least a year in order to transfer the property to someone else.

Thanks.
Posted on: 08th Oct, 2010 12:00 am
We are currently in a high interest rate mortgage and we keep falling behind each yr then tax time hits we get it caught up, so were wanting to file chapter 13 to help lower our mortgage payment, can this be done in a chapter 13?
Posted on: 28th Dec, 2010 03:42 pm
hi atate,

rather than going for chapter 13 bankruptcy filing, you should contact your lender and apply for a loan modification. this will help you in getting a repayment plan to pay off your dues at an affordable rate.

thanks
Posted on: 28th Dec, 2010 08:22 pm
I filed a Chapter 7 in 2005 and was discharged prior to the laws changing in Illinois. I have since lost my job and I have personal loans and payday loans that i need to eliminate. Can i file a chapter 7 again?
Posted on: 31st Jan, 2011 09:59 am
Welcome anonymous,

As per the new rules, you'll have to wait for 8 years in order to file Chapter 7 bankruptcy again.
Posted on: 01st Feb, 2011 10:52 pm
If my father cosigned on my mortgage and I file chapter 7 bankruptcy but FULLY intend to keep paying my mortgage as usual, will he be notified and aware that I filed bankruptcy?
Posted on: 03rd Apr, 2011 06:35 am
Hi seahorse,

If he is not filing bankruptcy with you, I don't think he will be notified about your bankruptcy filing.

Thanks
Posted on: 03rd Apr, 2011 11:53 pm
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