Filing bankruptcy will give you immediate protection from your creditors and provide long term relief by eliminating your credit card debt, medical debt, and most other unsecured debt. It will take a little bit of work and time, and probably just under $400 (for court filing fees and the mandatory credit counselling courses) to get to your discharge, which is typically not too much to pay in exchange for eliminating several thousand dollars worth of debts. Some debts, such as student loans, child support, alimony, and recent tax debts can’t be eliminated in a Chapter 7 bankruptcy. If most of your debt is in this category of non-dischargeable debts, filing bankruptcy may not be worth it because it will only minimally impact your day-to-day life.
On the other hand, if you are subject to wage garnishment or have credit card companies and payday lenders constantly requesting payments you simply can’t afford to make, filing bankruptcy is often the most effective and efficient way to get permanent relief and start fresh.
File Bankruptcy When Your Debts Outweigh Your Necessary Living Expenses
Before you file for bankruptcy, it’s important to weigh all your options. Although bankruptcy can relieve you from financial stress, it is not something that should be taken lightly. This is especially true because you can only get relief under Chapter 7 of the Bankruptcy Code every 8 years. If you file Chapter 7 even though you can pay at least some of your debts, you will not be able to seek the same relief if an accident, illness, loss of income, or other financial hardship arises in the near future. A good way to determine whether you need Chapter 7 relief is to compare your income with your necessary living expenses and your monthly minimum payments. If your monthly living expenses are higher than your income even without making the minimum payments on your unsecured debts, Chapter 7 bankruptcy is likely a good option for you. If, on the other hand, you have money left over after paying basic expenses and buying necessities such as food and household supplies, Chapter 7 bankruptcy may not be the right move for you at this time. Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt. Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid while giving creditors a chance to obtain some measure of repayment based on the individual’s or business’s assets available for liquidation. In theory, the ability to file for bankruptcy benefits the overall economy by allowing people and companies a second chance to gain access to credit and by providing creditors with a portion of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations that were incurred prior to filing for bankruptcy. All bankruptcy cases in the United States are handled through federal courts. Any decisions in federal bankruptcy cases are made by a bankruptcy judge, including whether a debtor is eligible to file and whether they should be discharged of their debts. Administration over bankruptcy cases is often handled by a trustee, an officer appointed by the United States Trustee Program of the Department of Justice, to represent the debtor’s estate in the proceeding. There is usually very little direct contact between the debtor and the judge unless there is some objection made in the case by a creditor.
Utah Bankruptcy Filings
Bankruptcy filings in the United States fall under one of several chapters of the Bankruptcy Code, including Chapter 7, which involves the liquidation of assets; Chapter 11, which deals with company or individual reorganizations; and Chapter 13, which arranges for debt repayment with lowered debt covenants or specific payment plans. Bankruptcy filing costs vary, depending on the type of bankruptcy, the complexity of the case, and other factors.
Chapter 7 Bankruptcy
Individuals and in some cases businesses, with few or no assets typically file Chapter 7 bankruptcy. It allows them to dispose of their unsecured debts, such as credit card balances and medical bills. Those with non-exempt assets, such as family heirlooms (collections with high valuations, such as coin or stamp collections); second homes; and cash, stocks, or bonds must liquidate the property to repay some or all of their unsecured debts. A person filing Chapter 7 bankruptcy is basically selling off their assets to clear their debt. People who have no valuable assets and only exempt property such as household goods, clothing, tools for their trades, and a personal vehicle worth up to a certain value may end up repaying no part of their unsecured debt.
Chapter 11 Bankruptcy
Businesses often file Chapter 11 bankruptcy, the goal of which is to reorganize, remain in business, and once again become profitable. Filing Chapter 11 bankruptcies allows a company to create plans for profitability, cut costs, and find new ways to increase revenue. Their preferred stockholders, if any, may still receive payments, though common stockholders will not.
Chapter 13 Bankruptcy
Individuals who make too much money to qualify for Chapter 7 bankruptcy may file under Chapter 13, also known as a wage earners plan. It allows individuals as well as businesses, with consistent income to create workable debt repayment plans. The repayment plans are commonly in instalments over the course of a three- to five-year period. In exchange for repaying their creditors, the courts allow these debtors to keep all of their property, including otherwise non-exempt property.
What to Do Before Filing Bankruptcy?
Before filing for bankruptcy, here are a few things you should do:
• Take a Credit Counselling course: This usually costs around $25 to $50; however, if you are unable to pay for a Credit Counselling course, you may be able to get the fee waived. The course will give you an overview of your debt relief options in and out of bankruptcy. If possible, take the course from an approved provider in your state, so you can use it to satisfy the required pre-bankruptcy credit counselling class. You won’t have to decide right away whether to file bankruptcy; the certificate of completion you will receive will be good for 6 months.
• Gather your financial documents, including your proof of income, bank statements, two years of taxes, lawsuit information for any cases filed against you, and a recent credit report. This will help you see the whole picture.
What to Expect After You Filed Chapter 7
As soon as your Chapter 7 bankruptcy is filed with the Bankruptcy Court, you will be protected from your creditors. The Bankruptcy Code provides for an automatic stay of all collection actions, so, everything from phone calls to wage garnishments has to stop. You will no longer have to deal with your creditors on an individual basis. Instead, you’ll have to work with the bankruptcy Trustee assigned to your case by sending them any documents they may request in preparation for your creditors’ meeting. Once the creditors’ meeting has been concluded and assuming you have completed the second mandatory credit counselling course, the Court will grant your discharge.
Advantages and Disadvantages of Filing for Bankruptcy
Many who qualify for bankruptcy never avail themselves of its potential benefits. While it is true that a bankruptcy filing can affect a person’s finances for years to come, for many people, filing is the best option. However, every person’s financial circumstances are unique to his or her situation. Deciding if, when and how to file for bankruptcy is a very complicated process and the consequences of filing when you shouldn’t can be considerable. Declaring bankruptcy can help relieve you of your legal obligation to pay your debts and save your home, business, or ability to function financially, depending on which kind of bankruptcy petition you file. But it also can lower your credit rating, making it more difficult to get a loan, mortgage, or credit card, or to buy a home or business, or rent an apartment. If you’re trying to decide whether you should file for bankruptcy, your credit is probably already damaged. But it’s worth noting that a Chapter 7 filing will stay on your credit report for 10 years, while a Chapter 13 will remain there for seven. Any creditors or lenders you apply to for new debt (such as a car loan, credit card, line of credit, or mortgage) will see the discharge on your report, which can prevent you from getting any credit.
Advantages of filing for bankruptcy include:
An automatic stay against creditors
Once you file, the court automatically issues this stay against any and all debt collection activity. It does not actually cancel your debt, but it suspends any debt collection proceedings until your bankruptcy case is complete or the stay is lifted. This means no more:
• Calls or letters from debt collectors
• Lawsuits on the debts
• Wage garnishments
• Home mortgage foreclosures
• Property repossession
If a creditor tries to collect a debt from you after the court grants your automatic stay, your attorney can bring a contempt of court action against them. This means the court can make them stop their collection attempts, fine them and/or make them pay you damages.
An automatic stay does NOT have the power to stop the following:
• Criminal proceedings
• Government tax audits
• The establishing, modifying or collecting of child support or alimony
• Establishment of paternity
• Co-debtors or co-signers
If you have already filed for bankruptcy once within the past year, you can petition the court for an extension of the first automatic stay. However, if you have filed two or more times during the past year, your automatic stay won’t go into effect without an explicit order from the court.
You may be able to discharge, or cancel, your responsibility to repay these debts. A dischargeable debt is one that can be eliminated by bankruptcy. These typically include credit card debt, medical and utility bills, and personal loans. Bankruptcy exemptions might allow you to maintain ownership of your property after bankruptcy. If you can “exempt” an asset, this means you don’t have to worry about it being seized in the bankruptcy. These exemptions play an important role in both Chapter 7 and 13 bankruptcies. Some exemptions protect up to a certain dollar amount of an asset; sometimes the exemption covers the entire value of an asset. Some exemptions apply to certain types of assets, like a motor vehicle or wedding ring, while others can be applied towards any property you own.
Although worries about a tanked credit ranking delay many in filing for bankruptcy, and a bankruptcy filing remains on your record for 7-10 years, many debtors actually start improving their credit scores after they file for bankruptcy. Once a person’s dischargeable debts are cancelled, this allows them to move forward with a clean slate and begin rebuilding their credit. However, filing for bankruptcy at the wrong time or filing when you shouldn’t can make a bad financial situation worse. Filing too early can sometimes mean that a person loses property he or she would otherwise have been able to keep, or that they have to file a different type of bankruptcy that is not in their best interests (i.e., having to file a Chapter 13 instead of Chapter 7). Regardless, even when bankruptcy is a person’s best option, filing also has real, lasting effects on a person’s finances that should be considered before filing.
Loss of credit cards
Many credit card companies automatically cancel any cards you hold when you file. You will probably receive numerous offers to apply for “unsecured” credit cards after filing. These can help you rebuild your credit, but usually require annual fees and high interest rates.
Immediate impact on your credit score
Chapter 7 bankruptcy stays on a person’s credit report of 10 years in North Carolina, while a Chapter 13 remains for seven (7) years.
Difficultly obtaining a mortgage or loan
A bankruptcy filing can make it difficult to get another loan or mortgage for many years.
Loss of property and real estate
Sometimes not all personal property and real estate will fit under an exemption. This means the bankruptcy court could seize some of your property and sell it to pay your creditors.
Denial of tax refunds
State, local and federal tax refunds can be denied because of bankruptcy.
Job and housing stigma
Some potential employers and landlords ask questions about any recently-filed bankruptcies and this can negatively affect your chances for both.
There are certain kinds of debt that cannot be discharged by bankruptcy. Non-dischargeable debts typically include alimony and child support, student loans, criminal restitution and fines, and any debts acquired through fraud.
When you need to file for bankruptcy, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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