If you are in debt and thinking about filing bankruptcy, you may have heard many negative connotations surrounding filing bankruptcy. However, there are 5 facts about filing bankruptcy that most people don’t tell you. Filing for Chapter 7 bankruptcy of Chapter 13 bankruptcy can seem unpleasant. However, many companies fail to tell individuals the good things about filing bankruptcy. Let’s see what they are below.
1. Filing Bankruptcy Does Not Mean You Can’t Keep Your Property
Often people assume that filing bankruptcy means that you have to give up your property. There are a lot of misconceptions that filing bankruptcy means that the Bankruptcy Court will take your property, fortunately, this is not true. If the Bankruptcy Court took everything you own, then it would be difficult to start life over again. Bankruptcy exemptions allow you to keep your property and file bankruptcy. Any exempt property can be kept. If you own property that is not exempt, the property will be sold to pay off your creditors. Chapter 7 bankruptcy and Chapter 13 bankruptcy, both have different rules about what property you can and can’t keep depending on what you pay back your creditors. Ensuring that you use the bankruptcy exemptions is vital because losing the wrong ones can put all of your property at risk. So, yes you may be able to keep your house, car and other assets that you own and get rid of your debt by filing bankruptcy.
2. Filing Bankruptcy Does Not Mean You Will Never Have Credit Again
Individuals looking to file bankruptcy often read all over the internet that when you file for bankruptcy your credit is ruined forever. I can’t stress enough how inaccurate this statement is. Bankruptcy laws were enacted to help people, not to ruin their lives forever. The very foundation of bankruptcy laws is to help people get a fresh start. Individuals file bankruptcy for all different reasons. Some of the most common reasons people file for bankruptcy is due to medical bills, divorce, unemployment, and business debt. If you could never get credit again then it would be very difficult to start your life over.
Many bankruptcy clients can get credit cards as soon as the bankruptcy case is over. Yes, this includes credit cards from companies that you included in your bankruptcy. Many individuals are also able to get car loans again and mortgages. At the beginning interest rates may be higher, but I’m sure if you were to look into getting a loan now with high credit card debt, you probably wouldn’t get approved or would have very high-interest rates.
For those of you that have heard that you can’t buy a home after filing bankruptcy and will never be able to own anything, this is not true. Individuals can close on a home loan after just a few years of filing bankruptcy. Of course, this will depend on the type of loan you are seeking and how you have managed your credit since your bankruptcy.
Mortgage companies have different timing requirements for when you can apply for a new loan. If you file a chapter 7 bankruptcy, the clock starts running from the time of your discharge. From that time you will need to typically wait four years for a conventional loan and two-years for either FHA or VA financing.
If you filed a chapter 13 bankruptcy, this can be different. You may be able to get approved for a conventional loan two years after your Chapter 13 bankruptcy discharge. FHA and Va loans are even easier to get after filing a Chapter 13 bankruptcy. You may be eligible within a year for these types of government home loans.
If you are like many consumers who filed bankruptcy because you lost your home due to foreclosure, you aren’t alone. Sometimes banks will require long waits for people who lost their homes in foreclosure. Usually, banks will require a seven-year wait from the foreclosure date. Most banks will require that you put down 10%. However, VA loans and government-backed loans can be much more flexible after a foreclosure.
3. Filing Bankruptcy Wipes Out Unsecured Debt Not All Debt
If you are looking into filing bankruptcy, you may wonder if all of your debt can be eliminated. In Chapter 7 bankruptcy, your debt is discharged. This means you no longer have to pay your creditors the money you owe them. In Chapter 7 bankruptcy, your unsecured debt is eliminated. In Chapter 13 bankruptcy, you pay back a portion of your debts and anything that is left over is eliminated. Many people assume that all of your debt is eliminated when you file bankruptcy. This isn’t true. Certain debts like some tax debt, child support payments, alimony payments, student loans, and secured debts can’t be eliminated. Debts that can be eliminated are debts like medical bills, credit card debts, and personal loans.
4. Settling Your Debt Is Not Better Than Filing Bankruptcy
Individuals often resort to bankruptcy as a last resort. Many people assume that entering into debt settlement programs is better than filing bankruptcy. I can’t even begin to tell you the countless number of individuals who come to me after paying into a debt settlement program. Please speak with a bankruptcy lawyer before signing up with a debt settlement program.
First, debt settlement programs are not regulated. Many debt settlement companies will try and tell you that they work for a non-profit organization and usually they don’t. Debt settlement companies scam people because no one is regulating that market. They prey on the most vulnerable people.
Debt settlement companies fail to tell people that settling debt has bad impacts on credit. First, late payments stay on credit reports for seven years. Next, debt settlement companies will not start settling your debt until you are at least 90 days past due. During this time you run the risk of creditors suing you, late charges and penalties being added to your account.
At the very least, speak with a bankruptcy lawyer first. Many bankruptcy lawyers can help you settle your debts for less. Often individuals enter into these programs waste money paying them and then end up filing bankruptcy. I have had clients lose thousands of dollars trying to settle debt to ultimately end up filing bankruptcy. Many of these companies fail to tell people that they are being sued and credit card companies end up getting judgments against these individuals. These judgments have lead to my clients getting wage garnishments and bank levies. A bankruptcy lawyer can look over your financial situation and determine if debt settlement or bankruptcy is the right option for you.
Keep in mind, that there are tax consequences when you enter into a debt settlement program. Many companies will fail to tell people that any debt that is forgiven over $600 is considered as taxable income. Thus, many times people end up facing large tax bills at the end of the year. When you file bankruptcy there are no tax consequences.
If you decide to hire a debt settlement company to help you make sure you ask the company these things:
- How much of your monthly payment will go towards the debt settlement companies fees
- How much of the monthly payment will go towards actually settling your debt
- How they charge you (a percentage on how much they save you or a flat fee)
- How long the debt settlement process will take
- How much of an impact will it have on your credit score
- How much you will owe at the end of the year to the IRS (there are tax consequences on the forgiven amount of debt.)
- Many of these debt settlement companies have been sued in the past. Make sure to do your due diligence to look at reviews about the company.
5. Filing Bankruptcy Helps You Start Your Life Over and Move Forward
Struggling to pay debt can cause physical and mental stress. Often individuals read all of this negative false information online about bankruptcy and lose sight of the very reason bankruptcy laws were enacted, to help people. Bankruptcy allows you to start over. Thus, filing for bankruptcy is a helpful tool. Bankruptcy can help you start putting money away, stop all of your creditors from going after you, immediately stop wage garnishments, repossessions, and bank levies. Filing for bankruptcy is one of the most powerful tools in stopping creditors from going after you.
If you are someone who lives paycheck to paycheck and doesn’t have any savings because it is all going to paying your debt, bankruptcy can be a big asset. When you file bankruptcy you can stop paying your debts and immediately start saving your money so that you don’t feel strapped.
If you are pulling money out of your retirement accounts, taking a home equity line or second mortgage to pay off your debts, it is important to speak with a bankruptcy lawyer first. If you are taking out more loans to pay off other loans, you are probably on your way to a bad financial situation.
If you want to learn more about how filing bankruptcy can help you, give us a call today. Our bankruptcy lawyers can answer all your questions about filing bankruptcy and facts about the process that you may not know about. Karra L. Kingston Esq. has helped many people in Staten Island and New Jersey file bankruptcy. Karra L. Kingston Esq. serves all of Staten Island, New Jersey and the 5 boroughs in New York. You can contact us by calling us at (973)-979-9078 or emailing us at karra@klkbankruptcylawyer.com