This is perhaps the most common myth. Most people make filing for bankruptcy a last resort due to fear that their credit will be destroyed. Fortunately, this is not true. Bankruptcy will most often improve your credit over the long run by removing debt obstacles and balancing your budget.
Chapter 13 and your credit: Chapter 13 is a reorganization and repayment program. The program is designed to consolidate bills, reduce debt and create a balanced budget while improving your credit. How does it work? According to FICO, 65% of your credit is comprised of two factors:
- Your payment history (35% of score) – timely, consistent payments to your creditors; this has the biggest impact on your credit score.
- Your debt load or leverage (30% of score) – how much debt do you have relative to your income or ability to repay.
So how does the Chapter 13 program work to improve your credit?
- The program re-establishes timely monthly payments to your creditors and stops the “late” reports to the credit reporting agencies therefore improving your payment history, which accounts for 35% of your credit score.
- Chapter 13 focuses on paying down principal debt. All unsecured debts, second mortgages and mortgage arrearages are paid back at 0% interest. So all payments go straight to pay down the bottom line principal debt, therefore reducing debt-to-income ratio each month of the program – a factor that influences 30% of your credit score.
Chapter 7 and your credit: Chapter 7 is a debt elimination program that allows you to eliminate all unsecured debts (such a credit cards, medical bill, personal loans, etc.) and make a fresh financial start. It is also a clean slate for your credit. Remember when you got your first loan or credit card and began establishing your credit? This process is simply repeated after a Chapter 7 bankruptcy. After a Chapter 7 discharge, we recommend that our clients establish and maintain manageable credit sources. This begins the process of establishing positive credit history and will begin building and improving your credit score.
The majority of our clients see an increase in their credit score within a year after their discharge. This occurs because debt obstacles have been removed, allowing you to balance your budget and remain current on bills. This reduces your debt-to-income ratio (accounts for 30% of your credit score). Also, all negative reports to credit have been stopped with legal debt resolution allowing you to create and maintain a positive payment history (35% of your credit score).
This is not the case. Typically, you will be charged a slightly higher interest rate (1 -2% points over conventional rates), but you will find that with an improved debt-to-income ratio after a bankruptcy discharge, you may be in a better position to qualify for the loan in the first place. Most Chapter 7 clients get new credit solicitations shortly after their discharge.
Clients are able to purchase a vehicle while in a Chapter 13 bankruptcy. We are simply required to file a motion with the court allowing you to incur additional debt and spelling out the terms of the new loan. Based on the flexibility of the Chapter 13 plan, we are able to make an adjustment to your budget to account for this new purchase.
Filing for bankruptcy prior to a foreclosure sale will actually shorten the period of time it takes to rehabilitate your credit. If you experience a home foreclosure, you typically have to wait about 6-7 years before you will qualify for a mortgage. If you file for bankruptcy with a foreclosure, you would qualify for another mortgage within 2 – 4 years, depending on the bank’s underwriting standards. Filing for bankruptcy not only ensures that you don’t have future collections or judgments resulting from the mortgage deficiency debt, but it shortens the time period to have to wait to make another home purchase by and average of 4 years.
While bankruptcy is listed on your credit report for 7 – 10 years, it doesn’t negatively affect or interfere with your credit for that time period.
This is most often not the case. Here are some of the standards for Chapter 7 and Chapter 13:
It is possible to keep your home while filing for Chapter 7 bankruptcy depending on how much equity you have in the home and assuming you are current on the payments. In general, most standard household possessions are protected in a Chapter 7 with the allowed bankruptcy exemptions. “Exemptions” are laws which protect specific types of property during the bankruptcy process.
The same is true for a vehicle, you will not lose your car in a Chapter 7 bankruptcy unless you are:
- behind on payments;
- have excessive equity in the vehicle or;
- you wish to surrender the car because it is no longer affordable for you to keep it.
Chapter 13 is reorganization plan designed to set up repayment terms with your creditors and help you to protect your home and property and prevent foreclosure. Unless you cannot afford your mortgage, property taxes or don’t wish to keep your home, it’s protected and you can set up repayment terms if you are behind on payments. The same is true of other property such as vehicles, furniture, etc.
When you meet with the attorney for the initial free consultation, we will review your debts obligations, assets, income and overall circumstances. We provide a comprehensive and complimentary financial evaluation. We will advise you on how to best resolve your debt obligations while protecting your property.
If income standards prohibit you from filing a Chapter 7 fresh start to eliminate your unsecured debts, Chapter 13 bankruptcy is still available to assist you in reorganizing and potentially eliminating a portion of your debts.
You can still enjoy court protection from your creditors under a Chapter 13 reorganization, which includes:
- Potential to remove a second mortgage(s) or home equity loan(s)
- Legally stopping a foreclosure sale
- Halting a vehicle repossession
- Stopping a judgment or garnishment
- Stopping all creditor calls and much more.
When you come in for the initial free consultation, we will evaluate your options and advise you on which plan is appropriate for your financial circumstances.
You are eligible to file a Chapter 7 every eight (8) years from the date of your previous filing. In the meantime, you still have the legal right to reorganize your debts with a Chapter 13. For more information and specifics, visit our dedicated page on re-filing for bankruptcy.
Filing a Chapter 13 provides full court protection from creditors and creditor actions such as:
- Home foreclosure
- Vehicle repossession
- Utility shut-offs, etc.
If it has been over four years since your Chapter 7 filing:
- You are eligible to eliminate a portion of not the majority of your unsecured debt obligations with a Chapter 13 discharge.
If it has been less than four years since your Chapter 7 filing:
- You are still eligible to file a Chapter 13 and reorganize debt, but you are not eligible to discharge debt.
- For instance, you are eligible to file Chapter 13 for purpose of protecting your home from foreclosure and paying back mortgage arrears even if it has been less than 4 years since your Chapter 7 filing.
If you have previously filed a Chapter 13, you are immediately eligible to re-file unless there is a court order barring you.
This is not the case. Under Chapter 13 reorganization, we propose a balanced budget plan, subject to Court approval. We look at all of your expenses to ensure that have adequate money to meet your monthly living expenses. We base our budgets and the court evaluates it based on IRS expense standards to ensure that the amounts are fair and adequate. In fact, your monthly living expenses take priority in the budget over monies that are paid to your unsecured creditors (credit card and medical bills, judgments, deficiency debt, personal loans, etc.). You still maintain control over and pay for your ongoing monthly living expenses directly, they are not paid through the Chapter 13 plan.
If your expenses change, we have the opportunity at any time to amend the budget plan. This is called a plan modification. We could potentially reduce what you are required to pay to the unsecured creditors to provide more money for living expenses as your needs and expenses change.
Most older tax debts can be totally eliminated in a Chapter 7 or consolidated and partially discharged under a Chapter 13 reorganization plan. Recent tax debt (typically from the prior three filing years) cannot be discharged, but favorable payment terms can be set up under a Chapter 13 plan.
If you are eligible, be sure to file a Chapter 7 bankruptcy prior to the IRS filing and obtaining a lien/tax levy. This attaches to all real and personal property and is not removed with the court discharge. In this case, you would need to consider filing a Chapter 13 bankruptcy to remove the lien interest and deal with the debt.
At the free initial consultation, we will evaluate your tax obligations as well your other debts to make comprehensive recommendation on how to best resolve your debts. Don’t delay; call today at 866-261-8282 to set up a complimentary and confidential consultation with a licensed attorney.
This is false. Qualified retirement accounts are legally protected (i.e., “exempt”) assets under a Chapter 7 or Chapter 13 Bankruptcy. The Trustee or your creditors do not have access these accounts for payment of debts or liquidation.
This is not a good presumption. While many Credit Counseling Agencies have established relationships and terms with credit card companies to set up repayment plans, they have no legal authority to bind creditors to these terms or force them to agree or even continue with the plan once it is established. At any time, a creditor can decide to opt out of the payment plan and sue you or get a wage garnishment, likely derailing the entire budget plan.
Chapter 13 provides unique advantages:
- All unsecured creditors (Credit cards, medical bills, qualified second mortgage(s) or home equity loan(s), personal loans, older tax debt, loan deficiency debt, etc.) are forced to comply with the terms of the confirmed Chapter 13 plan. They are all paid back at 0% interest and often paid at a reduced rates. The balance of these debts (whatever you cannot afford to pay back) are legally eliminated at the completion of the Chapter 13 process with a court discharge.
- As soon as you file and for the duration of the program you have court protection from your creditors. This means no phone calls, protection from foreclosure, vehicle repossession, garnishment, etc.
- Court oversight of the repayment process and a court-appointed Trustee handling all monetary funds. This ensures that your money goes to pay your bills and that all fees are regulated…no scams. Creditors are required to file proof of what you owe, the terms of the debt, etc. This is called a “proof of claim” and allows all parties to inspect what the creditor states you owe. If your creditor(s) fail to file a proof of claim, the debt will be automatically discharged at the completion of the program even through you didn’t pay on the debt.
- Repayment spans 36 – 60 months. At the completion of that timeframe, whatever balances remain on your unsecured debts are legally eliminated through a court discharge.
- You have the unique ability to legally remove a second mortgage(s) or home equity loan(s) depending on home valuation.
- Credit restoration is a built-in aspect of the program as you are:
- Providing consistent, timely payments to your creditors and;
- Reducing your debt-to-income ratio through-out the program and at the completion of the program with discharge of remaining balances. There are no more penalties or late reports to the credit reporting agencies.
- These 2 factors influence 65% of your credit score!
We encourage our clients to explore all of their options. We offer a free comprehensive consultation to review your finances, discuss your options and develop a game plan. Call us today at 866-261-8282 to speak with a licensed attorney. You can then compare our services to other options such as Credit Counseling Debt Management programs. While we are confident Chapter 13 provides many superior benefits to other available plans, if we don’t feel that your circumstances are a good match for the bankruptcy options, we will let you know. Our goal is simply to help people find the best debt resolution option available to them.
Many potential clients are concerned that their spouse will be forced to participate in the bankruptcy whether they want to or not. This is not the case. You have the option to file jointly or just on your own, your marital relationship does not compel your spouse to file or assume your debts. So how should you file? We make this determination on a case-by-case basis depending on:
- Nature (secured vs. unsecured) and amount of the debt(s)
- Whether it is jointly held or just in one spouse’s name
- Various income sources and other such factors
We can advise you on whether it makes sense to consider filing jointly vs. individually at the free office consultation after reviewing your financial information.
There is no minimum debt amount required to file for Chapter 7 or Chapter 13 bankruptcy. Here again, we take it on a case-by-case basis when advising clients on their best option.
Factors include, but are not limited to:
- Your ability to pay the debts back on your own. If you have debt, no matter what the amount, we advocate getting resolution. Don’t leave unpaid debt on your credit. Either set up a plan to pay your creditors back within a reasonable time (2 -3 years) or file for bankruptcy to eliminate the debt with a Chapter 7 or establish favorable repayment terms through Chapter 13. Unpaid debt can snowball with accrued interest and late penalties. It can also tank your credit score and prevent you from receiving new credit sources (mortgage or car loan, etc.). Don’t assume that just because a creditor is no longer sending you bill or a debt has been “charged off” that you are off the hook. Dormant debt can quickly become a headache when it is sold to a collector who pursues a judgment and garnishment. We recommend resolving these debts to ensure a solid financial future and gain financial peace of mind.
- Pending creditor actions. If you are facing a judgment and wage garnishment, this can seriously derail your whole budget and compromise your ability to pay important bills such as your mortgage or rent, transportation costs, etc. If you are behind on your mortgage and facing a home foreclosure, it is time to take legal action to stop the process before you lose your home. Generally, if a creditor is taking legal action to collect on a debt or take back your property (home, car, etc.), it is time for you get legal protection, such as a Chapter 7 or Chapter 13 bankruptcy.
Our firm specializes in Chapter 7 and Chapter 13 debt resolution. We offer a free, confidential consultation to advise you on how to best resolve your debts and move forward with your life. Call today at 866-261-8282, we offer phone and same day in-office consultations.
We understand this and are here to help. Not only do we keep our fees reasonable, but we also allow payment plans. Here is the breakdown:
Chapter 13 Bankruptcy Fees: In the majority of cases, our firm chooses to receive payment of our attorney fees through the Chapter 13 plan. We do this for a variety of reasons:
- To ensure upfront fees don’t become a barrier to our clients resolving their debts and receiving court protection and favorable repayment terms through Chapter 13.
- If the fees are paid through the plan, in most cases they are supplemented by your creditors. This means that it usually doesn’t cost you extra in the repayment process to have our representation. How is this? A Chapter 13 is based on your ability to pay and your available net income after the payment of your fixed living expenses, not necessarily your outstanding indebtedness. The attorney fees will be paid as part of your reorganization payment, a part of what we’ve proposed is available net income. In other words, the proposed payment would be required just by virtue of your ability to pay, but we can propose that those funds be paid toward attorney fees instead of unsecured debt. Your repayment plan is established with payment priorities:
1st: Your monthly living expenses (food, transportation, clothing, medical expenses, etc.)
2nd: Secured debt and arrearages (mortgage, car payments, etc.)
3rd: Priority debt such as income tax liabilities and child support obligations
4th, and lastly: Your general unsecured creditors (credit cards, medical bills, second mortgage or home equity loan, etc.).
They only receive whatever discretionary funds are left in the monthly budget after the above items have been paid. Many Chapter 13 Plans only propose to pay a small percentage back to the general unsecured creditors. By including your attorney’s fees as part of the Chapter 13 Plan, the percentage to general unsecured creditors can be reduced even more which does not create additional obligation in your budget. By electing to take our attorney fees through the Chapter 13 plan, your creditors are in effect subsidizing your attorney’s fees versus additional money out of your pocket.
- Court filing fee: $370.00 – 410.00 (variance based on single vs. joint filing, includes mandated credit counseling and merged credit report)
- All Attorney fees must be approved and ordered by the Bankruptcy Court.
Chapter 7 Bankruptcy Fees: Attorney fees for Chapter 7 proceedings are paid to us directly vs. administered by a Trustee in Chapter 13 cases. You have the option to pay $0 down and finance the fees with a 3rdparty agency after the case has been filed. Or you have the option to pre-pay the fees prior to filing. We do allow payment of these fees over a six (6) month time period. During this time, we will:
- Set up a file.
- Take your creditor calls and explain your intentions to them.
- Begin the process of gathering the necessary documentation.
Our firm strives to strike the perfect balance between reasonable rates and top-notch service. In 2005 the bankruptcy laws changed (Bankruptcy Abuse Prevention and Consumer Protection Act or BAPCPA) adding additional requirements and generally making it more complicated to complete the process of Chapter 7 bankruptcy. It is important to work with an attorney who specializes in bankruptcy and has past experience and success with their clients’ cases.
According Lois Lupica, principal investigator in a study of the2005 law change conducted by National Conference of Bankruptcy Judges Endowment for Education and American Bankruptcy Institutes:
“It takes more skill and experience to responsibly and professionally represent consumer debtors than it used to. There is a greater need to have a nuanced understanding of the dissonance between how the system is designed to work in theory, and how it works in practice. Moreover, the system is less tolerant of mistakes and yet there are so many more opportunities presented by BAPCPA for even seasoned attorneys. (Source: Consumer Bankruptcy News, 1/20/12)
The old adage, “you get what you pay for” seems to apply here. Carefully examine the firm that you intend to hire.
- See how long they have practiced in the bankruptcy field;
- Investigate if they have positive client reviews and satisfied client testimonials on their website;
- Determine if they have professional associations with national and local organizations;
- Review their rating with your local Better Business Bureau;
- Court filing fee: $395 - $430 (variance based on single vs. joint filing, includes mandated credit counseling and merged credit report);
- Attorney fees are set by individual firms, but are overseen by the United States Trustees office. Usually once you determine that you are filing you can cease making payments to unsecured creditors (card cards, medical bills, personal loans, etc.) since the debts will soon be eliminated. This frees up money in your budget to pay the necessary fees to file.