What is Bankruptcy?
Bankruptcy is a legal way to get rid of most of your current debt, stop harassment from creditors, and start fresh. It is a federal court process by which you can discharge some of your debt because you are unable to repay those debts. There are usually two ways bankruptcy is declared:
You file for bankruptcy
Your creditors ask the court to declare you bankrupt
Bankruptcy usually takes two forms: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy, otherwise known as “straight bankruptcy” or “liquidation,” allows the debtor to sell their non-exempt assets to pay off their debts; after that, the debtor will be free from all dischargeable debts.
There are specific eligibility requirements that you must meet to qualify for Chapter 7 bankruptcy. Some of the scenarios where you wouldn’t be eligible for Chapter 7 include when:
Your income is too high (this is determined using the “means test”): In such cases, your case may be filed under chapter 13 bankruptcy
You have the ability to repay your debt
You dismissed a bankruptcy case within the past 180 days
You previously filed for bankruptcy and the time frame to file another bankruptcy case has not passed
You attempted to defraud creditors
Under Chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code, some or all of your existing debt can be discharged. A “discharge” means you are not personally liable for the money and do not need to pay it back. The creditor you owe, such as a hospital or credit card company, cannot call you or take collection actions against you once the debt is permanently discharged.
Note: Most people will file a Chapter 7 bankruptcy to remove credit card debt and seek debt relief. Some debts may have a bankruptcy discharge but you might have to keep personal liability for other debts.
Debt Discharge Comes After Selling Off Assets
Chapter 7 bankruptcy often involves the liquidation (or selling off) of assets in order to pay past debts. Only after this process is completed can you have qualifying debts discharged. Some property is protected from liquidation by federal or state bankruptcy exemptions. In fact, many people who file for Chapter 7 can keep a majority of their property. It will be up to your attorney and bankruptcy trustee to decide what you can keep, what deals you can make with the creditor, and what you need to give up in your bankruptcy case.
Once assets are liquidated, the courts tend to discharge debts right away. In the whole Chapter 7 bankruptcy process, this happens about four months after you first file in bankruptcy court. Keep in mind you need to complete educational classes on debt management in between filing and receiving the discharge, or the judge may dent your debt discharge.
What Happens After a Chapter 7 Bankruptcy?
Government-funded student loans
Some forms of tax debt
Federal tax liens
Alimony or spousal support
Debts for personal injury or death arising from a motor vehicle accident
Fines and penalties for violating the law
Certain tax-advantaged retirement plans
Cooperative housing fees
Potential applicants for Chapter 7 bankruptcy should be aware that even private student loans are rarely discharged without a special showing of undue hardship. This can be hard to prove but can happen if you become permanently disabled and cannot work.
Property That Can Be Taken Before a Discharge
Bankruptcy is intended to help you get relief from the burden of debt, so removing all of your property would be counterproductive, as you would need to rebuy a car or other items.
Property that is considered necessary for modern life may be exempt from creditors taking it back. But, you may need to petition a judge to stop them.
Some examples of the property a creditor might try to take back include:
Motor vehicles or a second vehicle
A second home or vacation home
Tools used in your work
Musical instruments (unless you can prove you are a professional musician)
Cash, bank accounts, stocks, bonds, and other investments
A portion of the equity in your home
A portion of earned but unpaid wages
Public benefits that have accumulated in a bank account
Damages awarded for personal injury
While this list looks scary, it is important to remember that creditors can try to take these items, but they generally will not succeed. Much of this property is protected by Utah’s exemptions or wildcard exemptions, as it is essential for work or daily life.
A creditor will receive a notice saying your debts have been discharged. They can try reaffirming these items or sue you for debt if they do not agree with the discharge.
Once the discharge of debt is in place, things are considered final. A creditor cannot sue you, try to take your property, or harass you.
How to Get a Debt Discharge
Filing for bankruptcy is not an easy decision to make, but sometimes it’s necessary. You can start the process by asking an attorney what property is excluded in a Chapter 7 bankruptcy, and what could be included. They can tell you what a creditor might come after and how to legally and effectively stop them.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy requires you to make a repayment plan to pay creditors over a period of three to five years. This method is usually used if your income exceeds the limits set for Chapter 7 bankruptcy.
You also need to show you comply with the eligibility requirements before you can file Chapter 13. These include:
You are not a business organization
You took credit counseling
You have not dismissed a Chapter 13 case within the past 180 days
You have not filed for a Chapter 13 within the past two years
Use Reaffirmation to Stop Creditors Taking Your Property
Some creditors can keep their rights over your property even following a discharge. One way this can happen is through what is called a “lien.” A creditor can use a lien to enforce payment or take back the property.
For example, let’s say you keep certain secured property, such as your car. Your creditor may seek to reaffirm the debt with a lien. This “reaffirmation” takes place if you and the creditor agree:
You will remain liable for this debt
You will pay back some or all of a debt
You pay even though the debt would be discharged in bankruptcy
The creditor will not repossess the property as long as you continue to pay the debt
Reaffirmation must occur before the order of discharged debt is entered. If you want to keep a car or other property, you need to discuss this with the creditor early on. Your attorney can handle this for you and try to negotiate a fair payment schedule.
Solving Bankruptcy Problems
Following a bankruptcy, you may need to correct any inaccurate reports from former creditors. To do this, you will need to engage in a process with the credit bureau.
This can entail contacting former creditors for verification of the satisfaction of debts. Even when these issues are resolved, those who have completed a bankruptcy can still expect to:
Pay higher credit rates
Have higher down payments
Need to produce a co-signer when attempting to secure new credit
These complications are not the end of the world. They may require using a mortgage broker when seeking to purchase a house.
Even though it may be counterintuitive, there are benefits to bankruptcy when you have debts that you can’t pay. You will get a clean slate, and most negative outcomes will fade from your record within a few years. But whether or not you should file for bankruptcy is heavily dependent on an individual’s specific circumstances.
For this reason, it can be very beneficial to speak with a bankruptcy attorney in Utah who can explain the benefits and downsides to filing for bankruptcy in your particular situation.
The Honest Benefits of Bankruptcy
Consult with a bankruptcy attorney or educate yourself on your options — you may find that filing for bankruptcy could help you out of a difficult financial bind.
Most filers find that bankruptcy eases stress by stopping:
Collections agency calls or harassment
Debt lawsuits from creditors
Wage garnishment (creditors taking money from your paycheck)
Foreclosure (unless the property has already sold)
Repossession of some property (in Chapter 13)
Bankruptcy will also:
Get rid of many debts (in Chapter 7)
Protect some property from being sold (depending on exemptions in your state)
Put an end to growing debt and give you a fresh start to turn things around
Is Bankruptcy a Good Idea for You?
The decision to file for bankruptcy is a serious one. There are several considerations worth examining closely before getting started:
The impact on your future ability to access credit, lenders, or low interest rates
The impact on your credit report
Whether you could lose assets (if you file for Chapter 7)
The differences in the time and expense associated with each form of bankruptcy
Whether you are eligible for certain forms of bankruptcy
Whether you can retain specific valuable assets from repossessions (many states have exemptions)
Considering other impacts can be critical in deciding whether to file for bankruptcy or which form is a better option. Some bankruptcies may:
Fail to discharge credit card debts
Impact your pension plans or other assets
Create financial issues for co-signers
Feel like a significant invasion of your personal privacy with the bankruptcy court and working with your bankruptcy trustee
Any of these concerns may impact the desirability of the relief provided. However, none of these reasons are worse than staying in overwhelming debt or making your financial situation worse. Sometimes, you simply need debt help and cannot get there alone. Bankruptcy will give you a fresh start, and you can work towards the financial situation you want.
Despite what many think, filing for bankruptcy is not the end of the world. It can actually be the fresh start you have been looking for. The laws of bankruptcy were drafted with the purpose of giving people a second chance, and not to punish them.
But that doesn’t mean you should file for bankruptcy at the first sign of financial distress. Declaring bankruptcy will have short- and long-term consequences and should only be done as a last resort. So, when should you file for bankruptcy?
Before You File, Evaluate Your Situation
When should I file for bankruptcy? This is a question most people under financial distress ask. You should probably consider other options before going this route. These options include:
Getting credit counseling
Trying to negotiate your debt or make a payment plan with your creditor
Sticking to a budget
If, however, other options don’t seem feasible, filing for bankruptcy may give you the ability to get a fresh start.
Declaring Bankruptcy Will Affect Your Credit Score
In exchange for discharging your debt, filing bankruptcy shows everyone that you may be a credit risk, which will be reflected in your credit score. Thus, getting a loan, a mortgage, or a credit card may be very difficult after declaring bankruptcy.
You should note bankruptcy filed under Chapter 7 will remain on your record for 10 years. If you filed under Chapter 13, it would stay on your credit report for 7 years. After that, it is erased.
Your Co-Signers May Be Required to Pay Your Debts
Co-signers are people who agree to pay your debt if you are somehow unable/unwilling to pay the debt. If you file a Chapter 7 bankruptcy, your creditors are allowed to go after the co-signer even if your bankruptcy case is successful.
Under Chapter 13, your creditors can’t go after your co-signer as long as you make your regular payments per your agreement.
Filing for Bankruptcy during a Pandemic
Filing for bankruptcy during a pandemic or other national emergency may be challenging, as operational hours for courts may change. So, first, make sure your local bankruptcy court is open and taking cases before you file. You should also expect a delay in the processing of your case.
The Federal Government May Intervene
Under rare situations, the federal government may pass laws that could affect your bankruptcy case during a pandemic. For instance, the federal government passed a stimulus bill in response to the COVID-19 pandemic.
Under this stimulus bill, several temporary changes were made to the bankruptcy code. Some of these changes include:
Previously, the debt limit to be eligible to file for bankruptcy under the Small Business Reorganization Act (SBRA) was $2,725,625. Under this stimulus bill, the debt limit was increased to $7.5 million for a period of one year.
The bill also changed the definition of “income” for Chapter 7 and 13 bankruptcy filers. Accordingly, payments received from the federal government that are related to COVID-19 are not considered income for purposes of bankruptcy.
People with federal student loans can, without penalty, defer their payments for six months through September 30, 2020.
People who already filed a Chapter 13 and are under a repayment plan can make modifications if they can show “material financial hardship” because of the pandemic. The modifications include an extension of payments for seven years.
If your debts have become unmanageable or you’re facing foreclosure on your home, you might be thinking about declaring bankruptcy. While bankruptcy may be the only way out for some people, it also has serious consequences that are worth considering before you make any decisions. For example, bankruptcy will remain on your credit report for either seven or 10 years, depending on the type of bankruptcy. That can make it difficult to obtain a credit card, car loan, or mortgage in the future. It could also mean higher insurance rates and even affect your ability to get a job or rent an apartment.
The following are interesting things to know about filing bankruptcy. The decision to file bankruptcy can be tough so here are things you need to consider or know about before you make that decision:
• Deadlines: Deadlines are critical in bankruptcy court. The rules in bankruptcy are very complex, can be technical, and all case deadlines must be met. Failing to file the appropriate forms or documentation on time may result in your case being dismissed or delayed.
• You need to qualify to file for bankruptcy: Many people who would have qualified for a Chapter 7 discharge before the 2005 changes must now use Chapter 13 instead, which involve repayment of some of your debts. This is determined using the Means Test.
• Repayment Plans: In a Chapter 13 bankruptcy case a repayment plan that must be filed with the court. The court has a process that will determine exactly what income and expenses you have, and then calculate the reasonable expenses and monthly repayment amount for your case. In Utah this plan must be submitted to the court and confirmed.
• DIY Bankruptcy: Representing yourself in bankruptcy can be a huge mistake. The laws and the corresponding rules in bankruptcy can be very confusing, and many common errors could cost you a chance at a new financial start. An experienced attorney can help you determine the right laws to help you, represent you at the hearings and the meetings with creditors, and get most of the time save you money in the end.
• Focused Court: The Bankruptcy Court is a federal court which exclusively deals with bankruptcy cases. These courts are located around the United States, and they only handle bankruptcy cases and matters related to this legal area. You reside in an area that is served by a bankruptcy court.
• You get your own Trustee: The Department of Justice and the Bankruptcy Court in Utah will appoint a trustee in your case. This trustee will be responsible for overseeing your specific case and ensuring that all of the documentation is filed. The trustee is not in favor of either the consumer or creditors, but is an officer of the court instead.
• Get the best attorney: Choosing the right attorney that you can afford to represent you in bankruptcy court is very important and can affect the outcome of your case. You want a lawyer who will aggressively defend you and work hard to overcome any objections that may be presented by your creditors or the trustee. Experience is also very important, so you want an attorney who is very knowledgeable in bankruptcy law and that has been in the game for a long time.
• Your goal is a discharge: Another interesting things to know about filing bankruptcy is that a bankruptcy discharge is an order issued by the bankruptcy court stating which of your debts are forgiven. Usually this will include most unsecured debts that have not been repaid are eliminated in the process unless you have reaffirmed your obligation.
Utah Chapter 7 Bankruptcy or Utah Chapter 13 Bankruptcy
There are several situations where a Chapter 13 is preferable to a Chapter 7. A Chapter 13 bankruptcy is the only choice if you are behind on your mortgage or business payments and you want to keep your property, either in Utah or another state, at the end of the bankruptcy process. A chapter 13 bankruptcy allows you to make up their overdue payments over time and to reinstate the original mortgage agreement. In general, if you have valuable property not covered by your Utah bankruptcy exemptions that you want to keep, a chapter 13 filing may be a better option. Also, people file Chapter 13 bankruptcy because they have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non- dischargeable in a Chapter 7 (e.g. certain taxes). However, for the vast majority of Utah residents who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.
Advantages to a Utah Chapter 7 filing:
• You receive a complete fresh start. After the bankruptcy is discharged the only debts you owe will be for secured assets on which you choose to sign a “Reaffirmation Agreement.”
• You have immediate protection against creditor’s collection efforts and wage garnishment on the date of filing.
• Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours, not the creditors or bankruptcy court.
• There is no minimum amount of debt required.
• Your case is often over and completely discharged in about 3-6 months.
Disadvantages to a Utah Chapter 7 filing
• You lose your non-exempt property which is sold by the trustee. If you want to keep a secured asset, such as a car or home, and it is not completely covered by your Utah bankruptcy exemptions then Chapter 7 is not an option.
• If facing foreclosure on your home, the automatic stay created by your Chapter 7 filing only serves as a temporary defense against foreclosure.
• Co-signors of a loan can be stuck with your debt unless they also file for bankruptcy protection.
• If you filed a prior case and received a discharge of your debts, you can only file a second Chapter 7 bankruptcy case eight years after you filed the first case.
Advantages to a Utah Chapter 13 payment plan:
• If you choose and you can afford the payment plan, you can keep all your property, exempt and non-exempt.
• While debts are not canceled as in a Chapter 7 discharge they can be reduced under a Chapter 13 payment plan.
• You have immediate protection against creditor’s collection efforts and wage garnishment.
• More debts are considered to be dischargeable (including debt you incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).
• If the Chapter 13 plan provides for full payment, any co-signers are immune from the creditor’s efforts.
• You have protection against foreclosure on your home by your lender as long as you meet the terms of the plan.
• You have more time to pay debts that can’t be discharged by either chapter (like taxes or back child support).
• You can file a Chapter 13 at any time.
• You can file repeatedly.
• You can separate your creditors by class where different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.
Disadvantages to a Utah Chapter 13 payment plan:
• You create a payment plan where you use your post bankruptcy income. This ties up your cash over the Chapter 13 plan period.
• Legal fees are higher since a Chapter 13 filing is more complex.
• Your plan and therefore your debt will last for 3 to five years.
• You are involved in the bankruptcy court process for the term of the 3-5 year plan.
• Stockbrokers and commodity brokers cannot file a Chapter 13 bankruptcy petition.
Filing for Bankruptcy without an Attorney
You are not required to have an attorney to file for bankruptcy. In some simple Chapter 7 cases, you can file on your own (it’s called filing “pro se,” meaning that you represent yourself) if you are willing to put in some time and research. However, in many cases, it’s a good idea to have a bankruptcy attorney. The importance of an attorney depends on the complexity of your case and whether you are filing a Chapter 7 or Chapter 13 bankruptcy.
When Is it Feasible to File Without an Attorney?
What Is a Priority Debt?
Bankruptcy is an excellent tool that helps many people overwhelmed with debt get back on their feet. But it might not discharge (get rid of) everything that you owe. Priority debts get paid first if money is available to pay creditors. More importantly, they’re non-dischargeable—they don’t go away in bankruptcy.
Debts that you’ll remain responsible for include (many, but not all of these debts are priority in nature):
• child support, spousal support, or another domestic support obligation
• fines, penalties, and restitution imposed as punishment for violating the law
• some taxes
• intoxicated driving debts
• homeowners’ association dues assessed after filing for bankruptcy
• retirement plan loans
• money borrowed to pay off non-dischargeable tax debt (for instance, the credit card debt incurred after using your account to pay a tax bill), and
• debts determined non-dischargeable in a previous bankruptcy.
A student loan won’t get wiped out either unless you can prove to the court that it would be a hardship to make you pay it. Most people are unable to meet the standard, however. It can be costly to file and litigate the lawsuit necessary to prove the case, as well. Additionally, any creditor can file a non-dischargeability complaint asking the court to determine that a debt shouldn’t be discharged in your case. To win, the creditor will need to prove that one of a variety of situations exists.
• You committed fraud (for instance, you wrote a bad check or lied about your income on a credit application).
• You charged a luxury item less than 90 days before you filed for bankruptcy.
• You intentionally harmed someone or damaged their property.
• You embezzled funds or stole money.
• You failed to list all creditors in your bankruptcy petition.
If you suspect that you might have non-dischargeable debts, or that a creditor might file a lawsuit against you, it’s probably not a good idea to represent yourself. Instead, consider speaking with a bankruptcy attorney. The lawyer can consult with you about the status of your debt and whether proceeding forward is in your best interests. However, keep in mind that even the simplest Chapter 7 requires you to fill out extensive paperwork, gather financial documentation, research bankruptcy and exemption laws, and follow the local rules and procedures.
When Is it a Bad Idea to File Bankruptcy Without an Attorney?
There are many reasons to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy. You may want to file a Chapter 13 bankruptcy because you wish to catch up on mortgage arrears, get rid of your second mortgage, cram down (reduce) your car loans, or pay back non-dischargeable priority debts, such as back taxes or support arrears. Or maybe you make too much money to qualify for a Chapter 7 bankruptcy. No matter what your reason is, most Chapter 13 cases are too difficult to file on your own. Chapter 13 bankruptcies are a lot more complicated than Chapter 7s. In addition to filling out the official bankruptcy forms (and perhaps some local forms), you must also design a proposed repayment plan, something that is very difficult to do without the expensive software that most attorneys use. Also, certain actions such as stripping your second mortgage or cramming down a car loan will usually require filing additional bankruptcy motions and paperwork with the court. As a result, even some attorneys will limit their bankruptcy practice to Chapter 7 cases because they feel they are not qualified to handle a Chapter 13. In fact, an overwhelming majority of Chapter 13 cases filed without an attorney get dismissed by the court. So if you are planning to file a Chapter 13, it is a good idea to hire a qualified attorney.
If You Have a Complicated Chapter 7 Case
Certain Chapter 7 cases are more complicated than others. Your Chapter 7 will usually be more complex if you own a business, have income above the median level of your state, have a significant amount of assets, or have creditors who can make claims against you based on fraud. If any of the above applies to you, you risk having your case dismissed, your assets being taken and sold, or facing a lawsuit in your bankruptcy to determine that certain debts should not be discharged. In that case, it is advisable to hire an attorney to handle your bankruptcy.
If You Are Not Comfortable Doing it on Your Own
If you have a simple Chapter 7 case, bankruptcy can be an intimidating and time-consuming process. You will need to accurately fill out many forms, research the law, and attend hearings. If you are not comfortable with any aspect of the bankruptcy process, you should consider hiring an attorney who will prepare the forms, attend the hearings with you, and guide you through the process.
Filing for Bankruptcy in Utah
Are you a resident of Utah and thinking of filing for Chapter 7 or Chapter 13 bankruptcy? If so, you will have to participate in credit counseling before you file, complete the bankruptcy petition and other required forms, and file those forms in the Utah bankruptcy court. After filing, you must complete debtor counseling before receiving your discharge. Although most of the bankruptcy process is governed by federal law, there is some Utah-specific information you will need to know before filing.
Pre-Bankruptcy Credit Counseling and Pre-Discharge Debtor Education in Utah
In order to qualify for Chapter 7 or Chapter 13 bankruptcy, you must show that you received credit counseling from an agency approved by the U.S. Trustee in Utah within the six month period before you file for bankruptcy. You’ll also have to take a debtor education course before you get a bankruptcy discharge.
Utah Bankruptcy Exemptions
Utah has a set of bankruptcy exemptions which help determine what property you get to keep in Chapter 7 bankruptcy and play a role in how much you repay unsecured creditors in Chapter 13 bankruptcy. Some states allow debtors to choose between the state exemption system and a set of federal bankruptcy exemptions but Utah is not one of them. In Utah, you must use the state exemptions–the federal bankruptcy exemptions aren’t available.
Completing the Bankruptcy Forms in Utah
When you file for Chapter 7 or Chapter 13 bankruptcy, you must complete a bankruptcy petition, a number of schedules containing detailed information about your finances, and several other forms, including a lengthy form known as the “means test” (for Chapter 7) and a similar form for Chapter 13.
Finding Means Test Information for Utah
When you file for bankruptcy in Utah, you must compare your income to the median income for a household of your size in Utah. If your income is less than the median, you will be eligible to file for Chapter 7 and, if you choose to file for Chapter 13, you can use a three-year repayment plan (rather than five years). This is called the means test. If your income is above Utah’s median income, you still might qualify for Chapter 7, but you’ll have to provide detailed information about your expenses and payments on secured debts in order to find out. Most Chapter 13 filers also have to provide this information.
Speak to an Attorney Before You File for Bankruptcy
If you are considering filing for bankruptcy, it is very important you have all the information you need, especially since bankruptcy laws tend to be detailed and complicated. Speaking to a bankruptcy attorney in Utah is the best way to ensure your rights are protected.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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West Jordan, Utah
84088 United States
Telephone: (801) 676-5506