You will be overwhelmed by debt and unable to make reduce your debts at a reasonable pace. You may have lawsuits filed against you, and garnishments against your wages, tax refunds, and even bank accounts. Your assets may be threatened with seizure. You may have a lien against your house. Creditors will be calling regularly, and you will have not have the means to satisfy them. Here are three levels of financial stress at which you should at least be considering bankruptcy:
It is time to trim expenses, negotiate with creditors, and start thinking about bankruptcy if you:
Unless you can quickly remedy the situation, plan to file bankruptcy if you:
File for bankruptcy immediately if your:
You need not wait until these disasters happen. If you see them looming ahead, you are better off filing for bankruptcy earlier than later. You will preserve more assets and your credit record will be more easily repaired.
After a bankruptcy, you are no longer required to pay any debts that are discharged. A discharge is a court order telling your unsecured creditors to stop trying to collect your debts. That means any actions your creditors have started or threatened to start must stop, including foreclosure, repossession, wage garnishment, and collection actions on credit cards and other personal loans. Your creditors can no longer call, send demand letters, file lawsuits, or seize assets.
Credit card debt, personal loans, legal judgments not based on fraud, medical bills, collection accounts, tax debts older than 3 years, and deficiency balances are discharged in bankruptcy.
The most common types of non-dischargeable debts are tax debts less than 3 years old, debts not disclosed in bankruptcy, child support, alimony, debts for willful or malicious injuries, court-imposed fines and restitution, student loans, government benefits overpayments, personal injuries caused by driving while intoxicated, and 401(k) loans.
Neither government nor private employers may discriminate against you for discharging a debt in bankruptcy.
Most people file under Chapter 7 because it gives them a fresh start. Chapter 7 cases usually take less than 5 months from start to finish. When done, your discharged debts are permanently gone. About two-thirds of filers elect Chapter 7.
The second most common form of bankruptcy filing is Chapter 13. Chapter 13 requires that you make payments towards your debts for the next 3-5 years. By filing under Chapter 13, you can stop home foreclosure proceedings. However, you still must timely make all mortgage payments that come due during your Chapter 13 plan. If your home has declined in value to the point where a second mortgage holder would receive nothing in foreclosure, you can use Chapter 13 to eliminate a second mortgage while keeping your home.
Other times Chapter 13 is chosen is because you are in a high income bracket and fail the means test, have a lot of assets, or filed for Chapter 7 in the last 8 years. Your attorney can analyze your situation and make recommendations.
No, but it must be completed at least one day prior to filing or your case will be dismissed. If you are filing jointly with your spouse, you must both obtain a credit counseling certificate. The certificate is valid for six months. Most companies offer online courses which should only take your 1-2 hours to finish.
Another credit counseling course must be completed within 45 days of your court hearing. It can also be completed online, and will take about 2 hours. It is best to take care of this second course soon after your bankruptcy filing.
You should have reasonably-good credit within two years, and maybe as soon as one year, if you follow these two recommendations: