What You Need to Know About Claiming Bankruptcy
Financial debt and the stress of dealing with persistent creditors can lead to an agonizing home life. As you begin to consider bankruptcy as a valid—or an only—option, you should arm yourself with as much knowledge about bankruptcy as you can. While a good mortgage lawyer has the knowledge to explain every aspect of bankruptcy to you, studying up on bankruptcy law yourself could lead to a quicker resolution. Here are 9 things you should know about bankruptcy before you decide to file for bankruptcy.
1) Filing for bankruptcy will ruin your credit score. The fact that you have filed for bankruptcy will show up for 10 years on your credit score. This will lead to high interest rates on any potential loans or credit cards.
2) Individuals can choose to file under 1 of 2 types of bankruptcy: Chapter 7 or Chapter 13 bankruptcy. If you are not looking for a personal bankruptcy, you can view other types of bankruptcy choices here.
3) Due to the rampant abuse of Chapter 7 bankruptcy, you must prove that you are not capable of paying back your loans. To qualify for a Chapter 7 bankruptcy you need to have less than $7,025 in disposable income, and no more than $11,725. On top of that you cannot have filed a Chapter 7 claim in the last 7 years. If you attempt to file for Chapter 7 when you do not meet the qualifications, your petition for bankruptcy will either be changed to a Chapter 13 claim or dismissed.
4) The appeal of a Chapter 7 bankruptcy is that it offers a relatively fresh start. Any non-exempt assets are liquidated and then used to pay off creditors. In some cases some Chapter 7 debts cannot be wiped clean. In these cases you will need to continue making monthly payments until they are paid. Debts not forgiven include:
- Student loans
- Fines owed to government agencies
- Your last back tax
- Alimony and child support
5) You should also know that a Chapter 7 bankruptcy leaves any co-signers on mortgages or loans financially responsible for paying your entire debt for you. If you have a substantial loan co-signed in someone’s name, you may want to file for a Chapter 13 bankruptcy.
6) Chapter 13 bankruptcy allows individuals to come up with a payment plan to pay back creditors. While the plan is being made and the credit is being repaid, your creditors cannot claim your assets. If you keep with the plan for a certain amount of time, your remaining debt might be forgiven.
7) Both a Chapter 7 and Chapter 13 bankruptcy involves a trustee. In a Chapter 7 bankruptcy the trustee is in charge of liquidating and distributing any available non-exempt assets to creditors. In a Chapter 13 bankruptcy the trustee oversees the proposed plan and payments. He or she will collect payments and distributes them to your creditors. In Chapter 13 cases trustees are paid 8% of your assets for their work.
8) Bankruptcy exemptions depend on your state of residence. While the federal court has federal exemptions laws, states can choose to follow their own laws. You should check with your lawyer about whether or not you will need to follow federal or state laws when tallying your exempt property. Federal Exemption law offers protection to:
- Homes under $21,165
- Household goods and furniture up to $11,525. No one item can exceed $550.
- Automobiles up to $3,450. If you have a car worth more than that amount, you can claim your car as a tool of the trade.
- Retirement Assets up to $1,171,650
- Jewelry up to $1,550
- Tools of Your Trade up to $2,300
- Alimony and Child Support
- Prescription Health Aids
9) You must meet with an approved credit councilor within 6 months of filing for bankruptcy. Mandatory credit counseling is meant to educate you about debt and increase the likelihood that your bankruptcy will be a success.
10) You must take money management classes before your debts are discharged by the court.
If you do file for bankruptcy, it is important to choose the type of bankruptcy that is best for you. Personal research, a good lawyer, and your trustee will let you know whether or not you have provided all the necessary information and done all the proper steps to file for bankruptcy.
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Category: Bankruptcy
