Bankruptcy can provide a much needed lifeline for individuals and businesses who are struggling to pay off their debts. Bankruptcy offers an opportunity to restructure debt in order to uncover affordable payment options, and can stop harassing creditor calls. By filing bankruptcy, creditors are not entirely written off; debts that can be paid must still be repaid under the bankruptcy system. It also prevents creditors from suing or seizing assets during bankruptcy proceedings, which give debtors time and space to reorganize their finances instead of being immediately overwhelmed by mounting debt collection efforts. Additionally, bankruptcy can help individuals rebuild their credit rating over time with positive financial behavior. Consequently, bankruptcy provides invaluable relief that should be carefully considered before other action is taken to resolve debt issues.
Frequently Asked Questions about Chapter 7, Chapter 13, and other legal debt recovery solutions.
Common and unique questions we get asked by our clients.
Chapter 7 bankruptcy is a legal process under U.S. federal law that allows individuals or businesses to eliminate unsecured debts by liquidating non-exempt assets to pay off creditors.
Chapter 7 involves liquidation of assets to pay debts, while Chapter 13 involves a repayment plan to pay off debts over 3-5 years without liquidating assets.
A Chapter 7 bankruptcy stays on your credit report for 10 years from the date of filing.
Discharging student loans in Chapter 7 is difficult, requiring proof of “undue hardship,” which is often a high standard to meet.
The means test determines if your income is low enough to qualify for Chapter 7. It compares your income to the median income of your state and evaluates your disposable income after expenses
You may be able to keep your house or car if their equity is within exemption limits, and you continue making payments on secured debts like mortgages or car loans.
Co-signers aren’t protected in Chapter 7, meaning creditors can pursue them for the debt if the primary debtor’s obligation is discharged.
Some less common debts that can be discharged include money owed for utility bills, unpaid rent, medical bills, and certain tax debts that meet specific criteria.
Yes, you can convert a Chapter 7 bankruptcy to a Chapter 13, provided you are eligible and can propose a feasible repayment plan to the court.
In most cases, your 401(k) and IRA accounts are protected from liquidation during Chapter 7 bankruptcy under federal and state exemption laws.
Common and unique questions we get asked by our clients.
Chapter 13 bankruptcy, also known as a wage earner’s plan, allows individuals with regular income to develop a plan to repay all or part of their debts over three to five years. It offers an opportunity to save their homes from foreclosure, reschedule secured debts, and consolidate payments to unsecured debt.
To be eligible for Chapter 13 bankruptcy, an individual must have a regular income, unsecured debts below $419,275, and secured debts below $1,257,850 (as of September 2021, adjusted periodically for inflation). Additionally, the individual must not have had a bankruptcy petition dismissed in the last 180 days due to failure to appear in court or comply with court orders, or had a voluntary dismissal after creditors sought relief from the automatic stay.
Chapter 13 bankruptcy has a negative impact on credit scores, as it remains on the credit report for seven years from the filing date. However, the impact lessens over time. Timely payments and responsible credit use after filing can help rebuild credit.
Some tax debts can be discharged or restructured in Chapter 13 bankruptcy, depending on the type and age of the tax debt. Priority tax debts, such as recent income taxes, must be fully paid in the repayment plan, while non-priority tax debts, such as older income taxes, may be partially discharged or paid in full, depending on the individual’s disposable income and the plan’s duration.
The repayment plan in Chapter 13 is determined by several factors, including the individual’s income, expenses, and the types of debts owed. Priority debts must be paid in full, secured debts may be restructured, and unsecured debts are paid based on the individual’s disposable income. The plan’s duration depends on the debtor’s income, ranging from three to five years. The bankruptcy trustee reviews and, if appropriate, approves the proposed plan.
Generally, student loans are not dischargeable in Chapter 13 bankruptcy. However, the repayment plan may provide temporary relief by lowering monthly payments or deferring them until the end of the plan. To discharge student loans, the debtor must prove “undue hardship,” which is a high standard to meet and requires a separate legal process.
If an individual cannot complete their Chapter 13 repayment plan, they may have several options, depending on the reason for the failure. They may request a modification of the plan, convert to a Chapter 7 bankruptcy (if eligible), or seek a hardship discharge if they can prove their inability to complete the plan is due to circumstances beyond their control. If none of these options are viable, the bankruptcy may be dismissed, and the debtor may lose the protections provided by the bankruptcy process.
In most cases, individuals can keep their personal property during Chapter 13 bankruptcy, as long as they continue making payments under the repayment plan. This is different from Chapter 7 bankruptcy, where non-exempt assets are liquidated to repay creditors. However, the value of certain non-exempt assets may affect the repayment plan and the amount paid to unsecured creditors.
Yes, self-employed individuals can file for Chapter 13 bankruptcy, provided they meet the eligibility requirements. They must have a regular income and provide detailed financial records, such as profit and loss statements, to demonstrate their ability to make payments under a proposed repayment plan. The bankruptcy court and trustee will review the financial records and proposed plan before approval.
After completing a Chapter 13 bankruptcy, individuals may be eligible to apply for a mortgage as soon as one to two years from the discharge date, depending on the loan type and lender requirements. Some government-backed loans, like FHA or VA loans, have more lenient waiting periods. It is crucial to rebuild credit, maintain stable employment, and demonstrate responsible financial habits during this waiting period to increase the chances of obtaining a mortgage.
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