Filing for Bankruptcy in Northeast Ohio

Understanding Bankruptcy

Should You File for Bankruptcy?

Now, what about bankruptcy? First, it is not the death blow to your life or ever being able to get credit again that you may have been told. If used properly bankruptcy can eliminate most or all of your debt and in a couple of years from the discharge, you are getting credit at decent interest rates again. There are two types of consumer bankruptcy. Those are Chapter 7 and Chapter 13. They each have benefits and there are specific rules for accessing each.

A few facts about bankruptcy:

1. The filing will stay on your credit report for 10 years – just like any other bad debt.

2. You can file Chapter 7 after receiving a discharge in a prior Chapter 7 every 8 years.

3. If you have filed a Chapter 7 and received a discharge you can file a chapter 13 4 years after the prior discharge to receive another discharge. However, you can file a chapter 13 at any time. This can be an effective tool in certain circumstances.

4. If you are filing a Chapter 7 and behind on your car or mortgage payments your home and car are still at risk. To ‘save’ those assets if you are behind you will need to file a chapter 13.

5. When you file a chapter 7 bankruptcy it discharges the obligation to pay (promissory note) but does not remove the mortgage or lien securing the debt to the asset. Meaning if you stop paying on your car or house, you will lose that asset but not be responsible for the difference between what the asset is sold for and what you owe. This is an effective tool if you are in a situation where you have an extraordinarily high car payment and want to get rid of the car.

6. As of right now, student loans are NOT dischargeable in bankruptcy. You can make payments on them in a chapter 13 but you will be accruing interest during the plan.

7. Bankruptcy can discharge certain tax debt (not property tax) but there are very specific rules to qualify for that type of discharge.

8. If you file a bankruptcy and do not reaffirm the debt (take it back on like you did not file bankruptcy on that particular debt) the creditor will NOT send you notices or let you pay online. There are some companies that will reinstate the billing and online payment with a letter from your lawyer. The creditor will also NOT report the payments to the credit reporting bureaus.

9. When Congress changed the law in 2005 it instituted a rule that all bankruptcy filers must take two classes (on-line or via telephone). One must be taken within 6 months prior to the date you file and the second must be taken after you file but before you will receive a discharge. These classes cannot be skipped or omitted or you will not be able to file or get your discharge.

So, now about chapter 7 bankruptcy. This is the type of bankruptcy we call a ‘liquidation’ bankruptcy. This means that all of your dischargeable debt (medical bills, credit cards, payday loans, unsecured loans to name the most common) is eliminated with your discharge. However, if you own an asset with equity (value over what you owe on the loan against that asset) and the State exemptions (equity that cannot be attached by any creditor and set by State law) does not cover the full amount of the equity in that asset then the asset must be ‘liquidated” (turned into cash) and used to pay your creditors. This means that if you have an asset you own that has unprotected equity you will have to either ‘buy it back’ from the court or turn it over to the court, receive your exempted equity and the rest is used to pay your creditors.

10. The primary determination as to whether you can file a chapter 7 or a chapter 13 is an analysis called the Means Test. This test assesses your gross income, family size, and allowable expenses. You are over the median income based on those factors it is presumed that you must file a chapter 13 and pay your creditors back at least a percentage of what you owe. If you are under the median income then you may file a chapter 7 unless there is a reason that you would need to file a chapter 13, like to save your home or car.

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