General Bankruptcy Questions
What Happens When You File Bankruptcy?
People can fall into overwhelming debt for a number of reasons. Business failure, income drop, medical problems, divorce, and bad financial decisions (we have all made them!) often snowball into uncontrollable circumstances for many people. Bankruptcy carries a negative stigma, but it is more common than you would think. It is nothing to be ashamed of and your private financial information is protected by federal law. Bankruptcy can relieve the overwhelming stress surrounding debt, and put you on the path towards a financially secure future.
Why do People Choose Bankruptcy?
- Peace of mind
- Stop Home Foreclosure
- Regroup after Divorce
- Drowning in Student Loan Debt
- Recovering from Medical Bills
- Prevent Vehicle Repossession
- Overwhelming Pressure from Creditors
- Unexpected Unemployment
- Government Sponsored Debt Consolidation
Filing for bankruptcy can help you get rid of the stress associated with all these situation, and send you down the path toward a more financially secure future.
What is Chapter 7?
A Chapter 7 bankruptcy is the most common type of consumer bankruptcy. A chapter 7 typically will discharge or eliminate credit card balances, installment loans, medical bills, and most other unsecured debt. Unlike Chapter 13, Chapter 7 bankruptcy cases do not involve filing a plan of repayment. In nearly all cases, a debtor will keep all his or her belongings and property, and if a debtor is current with his or her mortgage and automobile payments, a debtor typically is able to continue the payments to his or her lender and retain possession.
What is Chapter 13?
A Chapter 13, also known as a “repayment” plan, is a type of bankruptcy in which the debtor proposes an affordable repayment plan to the Chapter 13 Trustee. This type of bankruptcy plan allows individuals to retain their property and personal belongings that may otherwise be non-exempt. A Chapter 13 plan can help individuals catch up on home or auto loans that are past-due and pay for non-dischargeable taxes, back child support, and student loans.
How Long Does Bankruptcy Take?
Chapter 7 bankruptcies only take a few months usually. Chapter 13 will take 3-5 years depending on the payment plan you outline with your bankrupcy attorney.
Can Bankruptcy Help With Income Tax Debt?
The age of the tax debt and the date the tax returns were filed usually determines whether an individual can wipe out his or her tax debt. Also, a Chapter 13 Repayment Plan may be able to help debtors with back taxes that cannot be discharged in a Chapter 7 bankruptcy.
What is the Cost of Filing a Chapter 7 or Chapter 13 Bankruptcy?
The U.S. Bankruptcy Court will require the debtor to pay a filing fee upon the filing of a bankruptcy petition. A Chapter 7 filing fee is $335.00. A Chapter 13 filing fee is $310.00. If a debtor uses an attorney to assist him or her in filing bankruptcy, the attorney fees vary from law firm to law firm.
What Does Bankruptcy Do to My Credit?
Understandably, one of the most common concerns you may have when considering bankruptcy is how it will affect your credit score. Although filing for bankruptcy is a negative credit event, it often enhances your ability to rebuild your credit in the future. We’ve found that clients experience an increase in their credit score immediately after receiving a bankruptcy discharge.
You may be asking, “How is that possible if bankruptcy is a negative credit event?” Well, one of the main components of your credit score is your debt-to-income ratio – essentially, the difference between the debt you owe and your earned income. Upon receiving a court-approved bankruptcy discharge, some or all of your debt will be eliminated. This elimination of debt will instantly improve your debt-to-income ratio, which will result in an improved credit score. For this same reason, many of our clients receive offers for credit shortly after being granted a bankruptcy discharge.