Statistics show that 60 percent of Americans live from one salary to another. This lifestyle is full of financial pressure, and it is not surprising that almost 11 percent of the adult population, or almost 37 million Americans, have some type of personal debt.
In 2018, almost 800,000 Americans filed for bankruptcy under Chapter 7 or 13. For most of those people, going bankrupt was a much needed relief. Bankruptcy stops the endless harassment of creditors seeking money.
If you have financial difficulties and are struggling to cover your debts, know that you are not alone. Millions of other Americans are also considering filing for bankruptcy or not.
The presentation of Chapters 7 or 13 presents some benefits and disadvantages. In this guide, we will see everything you need to know about filing for bankruptcy.
Filing for bankruptcy is one of the most serious financial decisions you can make in your life. Things will change dramatically for you after the presentation. Some of the events that will happen will be positive for you, while others present new challenges in your financial situation.
Bankruptcy frees you from the obligation to pay consumer debts. If you have outstanding bills, credit card debts, store debts or personal loans, all this will disappear from your radar. You can start over with a new perspective on your finances.
However, while these bankruptcy features may seem attractive to anyone who is drowning in debt, there is also a negative side. Filing for bankruptcy ruins your reputation in the financial system. We all have a credit score and a credit report that lenders use to assess risk when we request credit facilities.
As a newly bankrupt individual, you can forget about accessing the credit system for a while, for a long time. You must work with cash for the next few years. You will also discover that life is a little more difficult when people and organizations do not see it as solvent.
Bankruptcy is a legal process in which an individual appears in court to solemnly swear that he can no longer pay his debts. The person will declare bankruptcy according to Chapter 7 or 13, depending on their financial situation.
The court dictates a decision on your case based on the merits of the situation. If you approve your presentation, you are exempt from most of your debt obligations to creditors. It is important to keep in mind that bankruptcy only works to settle debts at the consumer level. If you have debts secured by the federal government, such as a student loan, then you are still responsible for these amounts.
Breaking has lasting financial implications for your life. Is it something you should consider? Or should I avoid the presentation? Let's unpack the benefits and inconveniences of going bankrupt.
Read: How to clear the debt on your credit report in less than a year
The two types of bankruptcy
When an individual, not a company, declares bankruptcy, he has two options, Chapter 7 or 13. If he ever heard news about Chapter 11 bankruptcy, it is because he belongs to corporations.
Chapter 7 Bankruptcy
With this presentation, you get forgiveness of debts for all types of consumer credit, such as credit cards, personal and car loans, and medical bills. In exchange for granting the debt forgiveness, the court orders you to hand over the assets to an administrator who sells them to cover the creditor's losses.
Some assets do not count for seizure during a Chapter 7 presentation. Your home, clothing and furniture are not at risk of being confiscated, and you do not have to worry about not having a roof over your head. If your home is near foreclosure, filing Chapter 7 will provide a suspension, and your lender must immediately stop foreclosure proceedings.
However, it is important to keep in mind that total debt forgiveness is not obtained with a Chapter 7 presentation. Federal debts, such as student loans and tax obligations, remain valid. Responsibilities such as compensation to victims of personal injury cases, child support and alimony continue to be legitimate debts that must be accounted for in their finances.
In most cases, the presentation of Chapter 7 takes between three and six months to go through the judicial system to reach completion.
Chapter 13 Bankruptcy
This option is slightly different from Chapter 7. With Chapter 13, you will not get any debt forgiveness. However, the court orders its outstanding debts under the control of an administrator for 60 to 90 days. During this time, you have the opportunity to liquidate your outstanding creditors.
If your home is currently in foreclosure, filing Chapter 13 will stop the procedure and grant you a temporary stay. You will not have to sell any of your assets as long as you adhere to the liquidation plan of the administrator.
Why doesn't everyone request Chapter 7?
If Chapter 7 exempts you from your consumer debts, why does someone request Chapter 13? Not everyone who asks for Chapter 7 receives a favorable decision about their situation. For an applicant to successfully apply for Chapter 7 bankruptcy, they must show that they have no disposable income and that they are struggling to pay their bills.
The court seeks the average income in your area during the last 6 months. Then they compare that data with their bank statements for their earnings. If your income is below the average of the last 6 months, then you qualify for Chapter 7.
Applying for Chapter 13 also means that you could get a reduced rate on your monthly student loan obligations. If you have secured loans that have a co-debtor, the presentation of Chapter 13 absolves the co-debtor of your financial commitment.
The presentation of Chapter 13 also protects your assets against seizure and auction. As an additional benefit, going to Chapter 13 allows you to pay your lawyer's fees during bankruptcy, instead of paying it in advance.
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The steps to file for bankruptcy
So how do you file bankruptcy? The process can be complicated to navigate and you will need the assistance of a lawyer to handle your case.
Filing for Chapter 7
Here is everything you need to know about the Chapter 7 bankruptcy statement. You must complete the mandatory bankruptcy advice of a nonprofit consultant before submitting the application. The documentation related to the presentation of Chapter 7 is extensive, which is one of the reasons why people chose to work with bankruptcy attorneys.
Some people may find it difficult to raise money to hire a lawyer. However, it is a decent expense, and hiring a lawyer will ensure that your presentation is made. Without a lawyer, the court may deny your request, or the judge may decide that certain debts do not qualify for bankruptcy.
Your lawyer files your bankruptcy petition on your behalf, and you must provide your lawyer with a list of all your assets, debts and income. After filing, creditors will stop chasing you for payment, and they cannot garnish your salary or sue you in court to recover your debts.
The court appoints an administrator for your case. You must complete a questionnaire in the presence of the administrator, your lawyer and your creditors. After reviewing your application and documentation, the administrator decides whether or not you qualify for Chapter 7.
If the administrator considers you eligible for bankruptcy, then the administrator reviews your list of assets. They determine what they can sell to cover as much of their outstanding debt as possible. Most of the presentations in Chapter 7 involve people without any assets.
If you have secured credit facilities, the creditor can keep the guarantee to cover any outstanding amount owed. You can pay the creditor the market value of the guarantee if you want to avoid selling it. You can also reaffirm outstanding debts, exclude them from filing and continue with a payment plan.
You should also attend a financial education course to educate you about the responsibility of handling money in the future. Three to six months after filing, your case is dropped and the courts forgive all your eligible debts. Shortly after that, the court closes your case.
Filing for Chapter 13
To qualify for Chapter 13 bankruptcy, you must have an income, and your unsecured debts cannot exceed $ 394,725, while your secured debts cannot exceed $ 1,184,200. You will also need current tax returns for your application.
Most of the rest of the proceedings related to filing are similar to Chapter 7. You will also need the services of a bankruptcy attorney. However, with Chapter 7, you must pay the attorney's costs in advance. With Chapter 13, legal fees are added to the total amount of your debt, which allows you to pay fees in payments during the bankruptcy period.
After the courts appoint a trustee, you must submit a payment plan within 14 days of submitting your petition. You have 30 days after filing to start making payments, even if the courts have not yet approved your request.
He meets with his lawyer and creditors between 21 and 40 days after filing and discusses the term of his payment plan. 45 days after that meeting, you will meet in court with the creditors and the administrator to discuss any problems with your payment plan and ask questions.
After approval, you will have three to five years to pay off your existing debts, in which you will return to your normal financial situation in the eyes of the law and the credit bureaus.
Who should think about filing for bankruptcy?
Filing for bankruptcy is a serious life decision with a lasting impact. When he declares bankruptcy, he erases all of his debts, giving him financial relief. However, your presentation goes to your credit report with the three major credit agencies, Equifax, Equestrian and TransUnion. The filing remains on your credit report for the duration of your bankruptcy.
If you have a bankruptcy statement on your credit report, then you probably have terrible credit. As a result, it will be difficult for you to secure any form of credit in the future. Even after your bankruptcy ends, lenders still require you to disclose any previous bankruptcy when applying for new lines of credit.
You may think that living a cash lifestyle doesn't sound so bad. However, the problems go beyond what you think. You may find it difficult to get a job, especially in the financial services industry.
You will also find it difficult to obtain insurance without paying astronomical premiums. Finally, you will also have difficulty finding a place to rent. Owners verify their credit before drawing up a lease. If you have bad credit, they will think twice before renting the apartment.
If you wish to file for bankruptcy, be sure to be sure of your decision and its impact on your financial future.
Who should avoid filing bankruptcy?
If you have any debts, but you do not run the risk of losing your home to creditors, avoid filing bankruptcy. While it may seem like a tempting option to escape your debts, it has lasting repercussions that will haunt you for the rest of your days.
If you have financial difficulties, but you have a decent income, try an alternative to file bankruptcy. Debt consolidation and refinancing are two valid options that could help you escape your debt trap and avoid bankruptcy.
Talk to a financial advisor and get your opinion on your case before deciding to present.
Read: Is it a good idea to refinance student loans?
Medical bills: the biggest cause of bankruptcy in the United States
In 2018, more than 530,000 Americans filed for bankruptcy under Chapter 7. If you are considering filing an application, then everyone is likely to have something in common that pushes them to the limit: unpaid medical bills. According to the investigation, unpaid medical bills are the most worrying factor related to Chapter 7 submissions.
Most people think that some other form of consumer debt, such as irresponsible credit card loans, is responsible for most bankruptcies in the United States. Since medical bills are the main cause of the problem, it's easy to see why some politicians are promoting a universal health system better than Medicare.
Disclaimer: The opinions expressed herein are only those of the author, not those of any bank or credit card issuer and have not been reviewed, approved or endorsed by any of these entities.
Disclaimer: The answers below are not provided or commissioned by the bank advertiser. The responses have not been reviewed, approved or supported by the bank advertiser. It is not the responsibility of the bank advertiser to ensure that all publications and / or questions are answered.[ad_2]