A comprehensive guide to bankruptcy
Bankruptcy is a form of relief and protection where consumer or businesses can cut down or restructure payments of their debts while being provided protection from their creditors in the federal bankruptcy court. You have probably heard of chapter 7 and chapter 13, these are just chapters in the bankruptcy book that allow for different scenarios under which a debtor can be protected.
It is not uncommon for something to happen in your life that will cause a financial burden on you. Maybe you have been laid off or fired, perhaps you or a loved one have been injured or sick and have medical bills piling up. Whether you have had a catastrophic event or you have just over-extended yourself with your creditors, you have found yourself in a situation where you can longer pay your bills or you are struggling to pay them on time.
Once you have reached this point, you realize it is time to get help. The good news is that help is not far away. You are allowed to petition the federal bankruptcy court for protection from your creditors while you work to straighten out your financial situation. If you do not want to lose your car, your home, and other important personal property the best bankruptcy scenario for you is a reorganization of your debts. This reorganization is possible through chapter 13.
Perhaps you have gotten so deep in debt that you want a clean start. You have these debts that you have no way to pay and you will ask the bankruptcy court for protection while you work to create a clean financial start. This process of eliminating debts will be handled in Chapter 7 of the bankruptcy code.
Explaining Chapter 13 Bankruptcy
Chapter 13 bankruptcy is where you will seek to reorganize your debts. You can pay something, you have a steady income and you are looking to try and keep your property.
To explain this more clearly , let’s assume you have an income of $2500 per month but your bills total $3000 so you are $500 short of making ends meet each month. Chapter 13 allows you to reorganize so that all your bills fit within the $2500 you have. Everyone gets paid and you keep all your property.
You will be able to keep all of your property, reduce your debts to a manageable amount, and move forward with a new lease on life.
Once in Chapter 13 there are only a few restrictions on the debtor:
- Make your plan payments
- Do not incur any more significant debt without court approval
- Keep current insurance on automobiles and other vehicles
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Explaining Chapter 7 Bankruptcy
Chapter 7 is a more suitable form of bankruptcy for people who can not pay their bills. They have no disposable income and can not pay their debts, leaving them with the need to have a clean start.
In Chapter 7 bankruptcy, you are not seeking reorganization of your debts because you have no disposable income to pay them so you need a complete discharge of all unsecured debt such as credit card bills, medical bills, etc. You can usually keep the property that you want to keep in chapter 7 as long as it fits within the exemption statutes.
Items that can be discharged in Chapter 7
- Personal loans
- Credit cards
- Repossession deficiencies
- Most auto accident claims.
- Medical bills
- Judgments
- Business debts
- Leases
- Guaranties
- Negligence claims
- Most income tax bills at least 3 years old
Can I keep my house in bankruptcy?
If you want to keep your house and file Bankruptcy, it is important that you are able to pay your house note on a consistent basis.If you are unable to make your house payment as it stands today, if will be very difficult to keep your house.
You need a source of income to keep your house. In Chapter 13, there is a way to keep your house. Let’s assume your house payment is $1,300/month and you are 4 months behind on the house note but now you have a job and can make the payment. The mortgage company may want all of the past due amount plus penalties and attorney’s fees.
In Chapter 13 you can wrap that past due amount and fees into your bankruptcy plan and pay it back over the 5 years allotted to reorganize your debts.
Can I keep my car in bankruptcy?
Chapter 13 bankruptcy will also allow you to keep your car.
While real estate is protected from bankruptcy by Congress, cars are not. In many situations, you will be able to reduce your car payment and keep your car.
You can not have owned your car for any less than 2.5 years to qualify, but assuming you have had it for 2.5 years you will be able to reduce the amount owed to the actual value of the car is according to the NADA book.
Let’s say you owe 18k on your car but the book value is only 12k, you would be allowed to spread out the payments of the 12k total over a period of 5 years in bankruptcy. This will cut your payment way down.
If you have not had your car for 2.5 years you can save money on interest and still keep your car.
Can my Student loans be included in bankruptcy?
Your student loans are not dischargeable, you can not do anything with them in chapter 7. However, if the reason you have not been able to pay your student loans is because of other unsecured debt like credit card bills and medical bills are piling up on you, then those items can be discharged, allowing you to focus on paying off your student loans.
Chapter 13 is the best choice for student loan debts because while you can not discharge them, you can control them. Here you can keep the creditor from doing whatever he might do to forcibly collect the debt.
In chapter 13, you can put them in a repayment plan that will pay them back over 5 years and will protect you from the creditor at the same time. If you cannot afford a payment that will completely pay them in five years, the remaining debt will continue after the plan is completed and an affordable payment can usually be worked out with the creditor.
Is bankruptcy going to ruin my credit?
If you are looking file bankruptcy, you most likely do not have a great credit score. However, there is something that can be done to help. Here at Darrell Castle, we offer a program, free to you, that will help return your credit score to a 720 even with a bankruptcy on it.
The bankruptcy will remain on your credit for up to 10 years, but your score can be returned to a 720 or higher by following our program in a short period of time. This $1,000 value is included for all of our clients for free.
Now, you can reorganize your financial life and begin to enjoy life, feed your family, and start the process of rebuilding your credit score.
What to do if you are facing a financial crisis
The best advice we can give you if you are facing a financial crisis is to not do anything that is going to make the situation worse. Things that can make your situation worse are payday loans and title loans.
These loans represent a failure in your financial structure and it is imperative that you get them under control quickly. You are not able to live within your means and are forced to borrow money to do so. By doing this, you compound the problem by having less money at your disposal on your next pay day.
If you are facing a financial crisis, you need to take this opportunity to reorganize your whole financial life and that can begin with a free consultation from us.
Call us today at 901.327.2100 to get the help you need.
Facing A Financial Crisis?