OvationLaw's Blog

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations."

Chapter 7 bankruptcy is the liquidation variety -- property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start. Chapter 13 is the most common type of "reorganization" bankruptcy for consumers -- you repay your debts over three to five years.

Both kinds of bankruptcy have numerous rules -- and exceptions to those rules -- about what kinds of debts are covered, who can file, and what property you can and cannot keep.  Bankruptcies, of any kind, stay on your credit report for 10 years.  All decisions regarding bankruptcy should be considered very carefully and not taken lightly.

Liquidation (Chapter 7)

Liquidation bankruptcy is called Chapter 7, and it can be filed by individuals (a "consumer" Chapter 7 bankruptcy) or businesses (a "business" Chapter 7 bankruptcy). A Chapter 7 bankruptcy typically lasts three to six months.

In a liquidation bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as "exempt" under the state or federal laws available to you (such as your clothes, car, and household furnishings). If you don't own much, chances are that all of your property is exempt and you have what is known as a "no asset" case.

If you owe money on a secured debt (for example, a car loan, where the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property. Some types of secured debts can be eliminated in Chapter 7 bankruptcy.

Not everyone can file for Chapter 7 bankruptcy. For example, if your disposable income is sufficient, after subtracting certain allowed expenses and monthly payments for certain debts (including child support and debts that secure property), to fund a Chapter 13 repayment plan, you won't be allowed to use Chapter 7.

Bankruptcy doesn't work on some kinds of debts. Though bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans, there are many types of debts, including child support and spousal support obligations and most tax debts that cannot be wiped out in bankruptcy.

Reorganization (Chapter 13)

Chapter 13 bankruptcy is also known as "wage earner" bankruptcy because, in order to file for Chapter 13, you must have a reliable source of income that you can use to repay some portion of your debt. And to qualify for Chapter 13, your secured debts must be less than $922,975 and your unsecured debts less than $307,675.

When you file for Chapter 13 bankruptcy you propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you'll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you'd filed for Chapter 7.

If you have secured debts, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time.

Most people don't think of bankruptcy as the 'solution-of-choice' to their financial woes because of the long-term ramifications and social stigma. However, when you have no other means of keeping the ship afloat, bankruptcy offers hope to sail another day. For qualified applicants, bankruptcy can mean a fresh financial start and an opportunity for a secure future.

Chapter 7 and Chapter 13 bankruptcy are legal proceedings that are available to a person in severe financial distress. But remember, bankruptcy does have far-reaching and long-lasting effects, and should be considered only as a last resort.

Bankruptcies remain on your credit report for 7 to 10 years, so stay away from credit repair agencies that claim to be able to remove legitimate and verifiable bankruptcies from your credit history. Their methods are unethical and often illegal – and you may be the one facing criminal charges!

Creditors and Bill Collectors Must Stop Contacting You
By law, all actions against a debtor must cease once bankruptcy documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments.  Secured creditors such as banks, holding for example, a lien on a car, may get the stay lifted if you cannot make payments.

The Effects of Bankruptcy on Your Spouse
Your wife or husband will not be affected by your bankruptcy if he/she did not sign an agreement or contract for any of your debt. Your spouse would most likely be responsible if a supplemental credit card was issued meaning you each have your own card, but jointly applied.

However, in community property states, either spouse can contract for a debt without the other spouse's signature on anything, and still obligate the other. There are a few exceptions to that rule, such as the purchase or sale of real estate; those few exceptions do require both spouses’ signatures on contracts. But the day-to-day debts, such as credit cards, do not require both spouses to have signed. Professional advice from a qualified bankruptcy attorney in your state should be sought to determine the effects on you and your spouse.

Public Knowledge
Even though Chapter 7 filings are public records, under normal circumstances, no one other than your creditors will know you filed for Chapter 7. However, the credit bureaus will record your filing and it will remain on your credit record for 7 to 10 years.

Keeping Your Current Credit Cards
Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card they will usually cancel the card unless you reaffirm the debt. Even having a zero balance, the credit card company may still choose to cancel the card.

Keeping Your Current Job
U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.

Keeping Your Possessions
In a bankruptcy, assets in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats will be liquidated by the trustee. You are allowed to keep certain assets, depending on the state in which you reside.

Rebuilding Your Credit
Several banks now offer 'secured' credit cards. These credit cards can be obtained when a debtor deposits a certain amount of money (as little as $200) into an account to guarantee payment. Usually the credit limit is equal to the security amount given and is increased as the debtor demonstrates ability to pay the debt.

Two years after a discharge in bankruptcy, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile as those who have not filed Chapter 7.  The size of your down payment and the stability of your income will be much more important than the fact you filed Chapter 7 in the past.

The fact you filed Chapter 7 or 13 stays on your credit report for 7 to 10 years becomes less significant the more time has passed since the filing.  Depending on your specific situation, you could be a better credit risk to some lenders after bankruptcy than you were before.

Costs of Filing Bankruptcy
The cost to file a Chapter 7 bankruptcy varies, but is generally about $200. Keep in mind that this is only a filing fee and in most cases you should consider consulting with a qualified attorney who is licensed in your state. Bankruptcy attorneys’ fees vary considerably throughout the country. It is not uncommon for bankruptcy lawyers to offer a free initial consultation, so shop around and meet with a few lawyers who offer the free consultation and see which firm you feel would most effectively meet your needs. Also, to keep costs at a minimum, organize your financial statements before your meetings with the attorney.

Contact Us
If you have any questions about your credit and how bankruptcy and foreclosure affect your credit report, or credit report repair services, please contact Ovation Law anytime:

Phone: 1 (866) 639 - 3426
Email: info@OvationLaw.com