Bankruptcy 101

 

Bankruptcy 101

Anytime I hear the bankruptcy the first thing that pops into my mind is Chapter 7. If you would’ve asked me couple of years ago what a Chapter 7 bankruptcy was I honestly would not have been able to tell you all I knew for certain was that was one chapter I wanted to steer clear of. I am sure we all have a similar variation of what bankruptcy is. For some filing for bankruptcy is possibly the clean slate they needed.

It is a situation no one ever wants to see themseleves in. However it does happen more often than we’d like to think. If you do happen to find yourselves in a place where bankruptcy is looking like it may be the only option I am here to tell you;

“It is not the end of the world”

Yes, it will most likely forever come up on your credit report even long after the time period has passed.

Yes, you will most likely have to explain the bankruptcy everytime you apply for credit.

However, if you took the opportunity given and truly used the clean slate to learn how to manage your money then the benefits of a bankruptcy could out weigh the con’s.

Bankruptcy

Types of Bankruptcies

Chapter 7

  • 10 years on your credit report
  • Complete Liquidation of Debt

Chapter 13

  • 7 years on your credit report
  • Reorganization of Debt
  • Payment Plan

Short-term Benefit

The immediate relief when filing for bankruptcy are the end to the continuous collection calls that usually border on harassing. It will also prevent creditors from continuing to charge your account late fees or finance charges etc.

Long-Term Benefits

Chapter 7 bankruptcy is the most common form of banruptcy files and is simply the liquidation of all the debt you included on the filing. (This will not however cover any debt accumulated after the bankruptcy filing date.) If approved your creditors will come to terms with the bankruptcy court and be paid a portion or all of the amount owed reliving you from any further obligation. For those that have been living pay check to pay check this bankruptcy will give them the breathing room to catch up financially.

What a Bankruptcy Can DO

  • Eliminate the legal obligation to pay most or all debts.
  • Stop a foreclosure on a home and allow the debtor an opportunity to cure a default
  • Prevent a repossession of a car or other personal property
  • Stop wage garnishments
  • Debt collection harassment
  • Prevent termination of utility service or restore service if it has already been terminated
  • Lower monthly payments on some debts including secure debt much as a mortgage loan and car loans.

What a Bankruptcy CANNOT DO

  • Modify certain rights of secure creditors

-This one could get a little tricky although the bankruptcy can force secure creditors to take payments over time in the process of the bankruptcy there are some secure creditors that are afforded protection from other modifications of the original loan terms.

  • Discharge debts singled out by the Bankruptcy Code for special treatment

-Examples os special treatment

  • Child support payments
  • Alimony
  • Court Restitution
  • Criminal Fines
  • Most Taxes
  • Discharge debts that incurred after the Bankruptcy has been filed

Student Loans

Although you would think that because the student loans you incurred would be considered debt and you could file it in the bankruptcy that may not be the case. There is a lot of red tape and very few exceptions are made to liquidate student loans. As the debtor you will be ask to prove the “Hardship” pay the debt will impose on you. Keep in mind this is not something that will automatically happen when you file. A request will need to be made seeking a determination on the matter. Unfortunately in most situations they will not be discharged. This is where filing for Chapter 13 may be the better route in your case. Chapter 13 allow the debtor to pay a lower amount through than owed there allowing you to make smaller payments.

Co- Signers

This is one that can often times get overlooked. A bankruptcy will not protect a co-signer on a loan. This means that although the Debtor of the bankruptcy was cleared on any obligation the co-signer may still have an obligation to repay all or part of the loan.

You do have Alternatives

If you see that you are barely making it month to month because your monthly budget has gotten out of hand and you find yourself behind on mortgage payments and car payments do not make the mistake of waiting because you feel you can catch up. Many have lost there homes to foreclosures because they filed last minute. A bankruptcy cannot halt a foreclosure once a sale has been made. So if you have received a default letter, or have been served a Lis Pendes this is the time to act. Bankruptcy does not have to be the first option. Here are some alternatives that could possibly help.

 Out of court settlement with Creditor

If you do not ask you will never receive. You’d be surprised what a couple of phone calls to your credit card, car loan, cable company etc. Some will be more than will to work with you, possibly lowering your monthly payment best case scenario they end up reducing the amount owed.

  • Mortgage Modifications
  • Consolidating your debt
  • Obtaining help from a credit counseling service