When credit card bills and other debt When credit card bills and other debt feel overwhelming, you may be considering filing for bankruptcy. While this does offer you the chance to get out from under debt, we wanted to take the opportunity to discuss the downside of filing for bankruptcy so you can make a fully informed decision.
In order to understand what is the downside of filing for bankruptcy, let’s look at what filing for bankruptcy does. The Bankruptcy process is governed by the Bankruptcy Code. If you owe money to creditors and are seeking a fresh financial start, you must understand bankruptcy law. Declaring bankruptcy is a personal decision and a bankruptcy attorney will review your credit record, financial situation, total debt, and assets and will recommend the best course of action. Chapter 7 bankruptcy and Chapter 13 are the two most common consumer bankruptcies.
Chapter 7 bankruptcy is a near-comprehensive clearing of debts, erasing medical bills, old utility bills, credit card debt, and personal loans. This option does require a means test based on your income, expenses, and family size to determine whether you have the disposable income available to pay on your debts.
Chapter 13 bankruptcy is a reorganization of your debt involving a repayment plan where you pay an agreed-upon amount for three to five years, and if you fulfill this debt, the dischargeable debts will be settled and erased from your credit.
The federal government requirements that you complete a credit counseling requirement before you file bankruptcy and a financial management course before you can receive your bankruptcy discharge. These online courses are designed so that you can get a better grasp of your financial life in your path towards a fresh start.
Before we dig into the downside, it is important to look at the benefits of filing for bankruptcy, whether you file for Chapter 7 or Chapter 13.
Collection efforts and the letters and phone calls from creditors can lead to serious anxiety and stress. By filing for bankruptcy, you will no longer have contact with them. Even when you are repaying debts through Chapter 13, all payments go through a trustee who conveys the money to the creditor, and they are not allowed to contact you.
By filing for Chapter 7, your credit card payments, medical bills, and many other debts will be erased, meaning you won’t have to scrimp to make minimum payments or forgo other necessities to keep your head above water.
While Chapter 7 may temporarily halt the foreclosure or repossession of your home or car, as long as you maintain good standing with your primary residence and your vehicle, in most cases you won’t lose them. That’s why, even if you are struggling to pay other debts, like medical bills and credit cards, it’s important to do everything you can to keep up with your home and car payments.
However, if you are unable to continue paying on your car or house, you can discharge the debt if you forgo your home and car in Chapter 7.
Most importantly, filing for bankruptcy offers freedom from many of your debts and peace of mind. While Chapter 7 is often completed in four to six months, Chapter 13 is a longer process of three to five years, but as long as you make the agreed upon payments, those debts will be satisfied and you can emerge with a clean slate.
Now that we looked at the benefits, it’s important to consider the downside of filing for bankruptcy.
Chapter 7 bankruptcy stays on your credit for 10 years while chapter 13 bankruptcy stays on your credit for seven years. Not only will this affect your ability to get a car loan or a mortgage in the future, but it can also hurt your ability to rent an apartment, rent a car, and even get a job as more employers do check credit reports.
However, if you have late payments and accounts in collections, this is also harming your credit, and if you don’t have a way to clear them, bankruptcy may allow you to move forward and begin improving your credit score.
Bankruptcy only allows you to discharge certain debts. The following debts must continue to be paid whether you complete Chapter 7 or Chapter 13:
Most unsecured debts such as credit card debt, medical bills, and personal loans can be discharged in bankruptcy filings. When looking to file for bankruptcy it is a good idea to seek professional help from a bankruptcy lawyer.
Filing bankruptcy will not absolve you from making your mortgage or car loan payments if it is your intent to keep those assets. Because they are a form of secured debt, failure to make the required monthly payments can have negative consequences and can result in the lender seeking to take possession of those assets. Failure to stay current with your home mortgage can end up in a foreclosure process.
While Chapter 7 liquidates your dischargeable debt so you don’t have to keep making payments, it’s not available to everyone. As we mentioned above, your eligibility for this is determined by your income, family size, and necessary expenses. Otherwise, you may file for Chapter 13, which does require a monthly payment toward your debts.
If you miss payments while in Chapter 13, the bankruptcy trustee assigned to your case may file a motion to Dismiss for Material Default. If your case is dismissed, your debts aren’t discharged and you’re back where you started when you originally filed for bankruptcy.
I most cases most of your bank accounts if not all will remain open.
Good credit affects your mortgage or car loan rates as well as the interest you pay on credit cards. It is a common misconception that a bankruptcy filing will remain in your public record for ever and that you will never have a financial future. In many instances you will start receiving new credit offers a few months after you bankruptcy filing. Obtaining a mortgage will take longer – it may take up to two to three years after receiving your discharge depending on your current financial situation.
Exemptions in bankruptcy play a key role in determining if your assets may be liquidated by the bankruptcy trustee. The are federal and sate exemptions where state laws vary widely. Florida has opted for the use of Florida exemptions instead of Federal Exemptions. In the event you have assets, it is important that you seek the advisee of bankruptcy lawyer who regularly appears in bankruptcy court where you live.
If you’re considering filing for bankruptcy, we can help. At Stiberman Law, we have the experience and knowledge to skillfully guide you through bankruptcy and come out with financial freedom and confidence in the future. To schedule a free consultation with a bankruptcy lawyer in Florida, reach out to us at (954) 922-2283 or fill out the form below to get started.
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