Month: March 2020

What Is Consumer Bankruptcy?

Life in the United States is tough for the general public. Not everyone has a six-figure salary and can afford to keep paying bills on time. Many people are troubled by debt resulting from credit cards, home loans, student loans, car loans, etc. Debt keeps mounting, and there comes a time when a person has no option but to give up. This is when filing for bankruptcy makes sense. Large debts incurred for business or personal reasons may necessitate filing for bankruptcy. On the other hand, consumer bankruptcy entails filing for bankruptcy due to personal reasons. A consumer is allowed to file under Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most popular kind of consumer bankruptcy, and it applies to both business entities and individuals. To be eligible for chapter 7 bankruptcy, your disposable income needs to be low enough to bolster your case. Whether the income is low or not is determined via a means test. This test takes into account your expenses and income, and you won’t be eligible if the numbers don’t meet certain requirements. Under Chapter 7 Bankruptcy, your medical bills, credit card bills, and most of the other general unsecured debts will be wiped out, and you won’t be allowed to pay back money via a repayment plan. Some major features of Chapter 7 bankruptcy include:

  • Debtors discharge qualifying debts, giving a fresh start to the consumer
  • A trustee is appointed to administer the consumer’s case and review their bankruptcy papers as well as supporting documents
  • A trustee is allowed to sell the consumer’s non-exempt property and use the money to return money to creditors
  • An automatic stay prevents creditors from collecting debt from the consumer

Chapter 13 Bankruptcy

Chapter 7 bankruptcy involves liquidation, while Chapter 13 bankruptcy is about the reorganization. This type of bankruptcy is for consumers who have a decent income with enough money left over every month to pay back some of their debts with the help of a repayment plan. Some of the major features of Chapter 13 bankruptcy include:

  • Applies to more affluent consumers/debtors
  • Individuals who need some debt relief to stop litigation or lower their card payments may apply for Chapter 13 bankruptcy
  • Individuals are allowed to keep their property, including non-exempt assets. However, they have to pay an amount equal to the total value of the non-exempt property to the creditors
  • Individuals who fall behind on loan payment and want to catch up on the missed payments to keep their assets may apply for this type of bankruptcy

Final Thoughts

Applying for bankruptcy isn’t easy, and a lot goes into the process. Ideally, you should determine what kind of bankruptcy is most suitable for you and then apply for it. If you can’t figure out which bankruptcy applies to you, consult with a bankruptcy attorney.

What Happens If You Damage Your Vehicle While You Are in Chapter 13 Bankruptcy?

Accidents can happen anywhere and anytime. If you are involved in an automobile accident while in a Chapter 13 bankruptcy, you might wonder what would happen and how the court handles the incident. Below we have explained what happens if you damage your vehicle while you are in a Chapter 13 bankruptcy.

Vehicle Damage During Chapter 13 Bankruptcy

If you wreck your vehicle during Chapter 13 bankruptcy, you should have your insurance company pay the lienholder the balance that is due on the claim. This can be less than what is being shown to be due. Then you would receive the difference. For example, if you wreck your vehicle and your insurance firm or the insurance company of the other driver agrees to pay $12,000 to you. However, the lien must be paid off. If the car is being paid through the Chapter 13 payment plan and according to the records of the Trustee and there is only $7,000 left on the claim, then the lien holder will only be entitled to $7,000, and you will get the difference, i.e., $5,000.

Another alternative is that you get a Motion to Substitute Collateral filed by your attorney. This isn’t easy, but an attorney can do it. In this case, the Bankruptcy Court would order that all or part of the insurance cash be used for buying another vehicle. Then the lien holder will be put on that car in the same amount that they were on the previous vehicle. Then you will continue to pay that amount through your payment plan. This option is useful when you need another vehicle but can’t afford to finance it. The court would put the lien on your new vehicle.

There are many court cases where this has been allowed, and debtors aren’t usually denied this right. If you are going with option one, then have your attorney look at the case and make sure that you get the insurance money from your insurance firm or the insurance company of the other driver. Don’t delay things and act fast to ensure that you get compensated for your loss.

Final Thoughts

If you wreck your vehicle during Chapter 13 bankruptcy, you don’t necessarily have to worry too much because insurance would pay for it. However, if your vehicle has been totaled, make sure to go with the second option – filing a motion. This way, you would get a new vehicle, and the lienholder would be placed on that.

The Advantages and Disadvantages of Filing for Bankruptcy

When faced with a mountain of debt, failing to make payments on time, you might think about filing for bankruptcy. Filing for bankruptcy can affect your finances for many years to come. However, for many people, it is a good idea because filing provides some benefits. Before you decide to file for bankruptcy, take a look at some of the pros and cons of filing. This would help you determine whether it makes sense to file or not.

Advantages of Filing for Bankruptcy

·         An Automatic Stay

Once you file for bankruptcy, the court will issue an automatic stay that would prevent creditors from pursuing any debt collection activity. This doesn’t cancel your debt, but it suspends all debt collection proceedings from creditors until the stay lifts or the case completes. You won’t get any letters or calls from collectors and won’t have to worry about wage garnishments, property repossessions, home mortgage foreclosures, and lawsuits on your debts.

·         Help You Keep Your Car or House

If you have fallen behind on your car or home loan payment and are afraid that you would lose the property, then filing for bankruptcy would stop a repossession or foreclosure. Chapter 7 bankruptcy won’t allow you to catch up on the payments; however, filing for Chapter 13 bankruptcy would help you make the payments through a repayment plan.

·         The Discharge

If you file for Chapter 7 bankruptcy, all your debts would get discharged, and you won’t have to worry about creditor harassment. If you don’t want to remove debt and can afford to make payments but need some relief in the repayment schedule, you can file for Chapter 13 bankruptcy.

Disadvantages of Filing for Bankruptcy

·         Effect on Credit

This is one of the major drawbacks of filing for bankruptcy. Bankruptcy filings remain on the credit report of the individual for ten years. However, the obligation to repay debts is erased as all debts are discharged through filing for bankruptcy. The effect of bankruptcy on credit can affect your ability to qualify for a loan in the future.

·         Some Property Loss

If you aren’t able to exempt all of your real estate or personal property under the exemptions of bankruptcy, the court may seize some of your property and sell it. The money would then be used to pay off creditors.

·         Issues with Opening a New Bank Account

The account you already have in different banks might not be closed after you file for bankruptcy. However, most banks won’t allow you to open a new account following the bankruptcy.

Final Thoughts

If you think that the advantages of bankruptcy outweigh its cons for you, you could consider filing for Chapter 7 or Chapter 13 bankruptcy.

How to Rebuild Credit after Bankruptcy

Bankruptcy can take a serious toll on your credit scores. Not only that, but filing for bankruptcy makes it hard to get approved for new credit in the future. Therefore, bankruptcy seems devastating. However, filing for bankruptcy doesn’t mean that you will never be able to get any credit. It is possible to repair your credit after bankruptcy, and many people have actually been able to improve their credit scores and secure loans after a bankruptcy discharge. Below we explained a few ways to rebuild your credit after bankruptcy.

Rebuilding Your Credit after Bankruptcy

·         Make Timely Payments

If you want to rebuild your credit score, make sure to make timely payments. Many factors make up the credit score, and they are weighted differently. On-time payment is one of the important factors, and it accounts for up to 35 percent of the total score. This is why it is important to make payments on time. It is worth noting that only the payments that are reported to the credit agencies will have an impact on your credit score. These include credit-based accounts like personal loans, auto loans, mortgages, and credit cards. Paying for cell phone, electricity, rent, and other bills won’t affect your credit score.

·         Get a Secured Credit Card

You may be able to get a secured credit card even after filing for bankruptcy. With this type of card, you are required to make a deposit equal to the credit limit that you are allowed on the card. For example, a $400 credit limit requires a $400. You will have to manage the new credit card properly and keep in mind that the main reason you got this card is to rebuild credit. If you over-utilize your account or make late payments, your new card would hurt your credit rather than repairing it.

·         Monitor Your Credit Report

Credit reports are not perfect. There can be errors in them, which can affect your credit scores. Therefore, it is important to check your credit reports to ensure that they accurately reflect the bankruptcy. The accounts included in the bankruptcy should show zero balance. If you find any errors, dispute them.

·         Try a Credit-Builder Loan

Credit-builder loans are designed to help consumers build credit. They work differently than other kinds of loans. In this type of loan, you won’t get the money upfront. Instead, the lender will put the cash in a savings account. You would get the money once you have made all the payments. If you make payments on time, your credit score will improve.

·         Consider a Secured Loan

You can consider getting a secured loan to rebuild credit. These loans are backed by collateral like a vehicle which the lender can claim and sell if you aren’t able to repay the loan. These loans can be a good option for you if you can afford to make timely payments. Before applying, make sure to check the monthly payments, fees, and interest rate to see if you can afford the loan

Final Thoughts

Don’t lose hope if you have filed for bankruptcy. You can still rebuild your credit by trying the methods discussed above. In case you have any questions, feel free to write us a query.

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