General Information About Filing For Bankruptcy
Filing bankruptcy may seem like a traumatic event that will effect your lifestyle for a very long time, but the reality is quite different. Once you have filed bankruptcy and the case is closed you essentially have a clean slate. You have no credit to speak of and need to rebuild it. If you have school loans those can help you rebuild your credit score since they usually are not be discharged under bankruptcy.
The next step is to pull your credit and make sure everything is accurate and clean up what isn’t. Many a time you will still have creditors reporting that you have not paid bills, even though they were discharged in the bankruptcy. Once you have done this it is time to look at getting secured credit with a credit card.
You simply deposit at least $200, or as much as you can at a bank and they will give you a card. You don’t want to charge more than 30% or so of your credit limit, and you want to pay the balance off in full each month. Light, regular use of a credit card is what helps build your credit.
Lastly, you can purchase a car and begin to build credit this way. You will likely pay a tremendous amount of interest for the first couple of years, but you can then refinance or buy another car at a much more reasonable rate if you have been paying your bills on time. Essentially, when you file for bankruptcy it is important to work on rebuilding credit immediately. Once you have started this process you will be able to get normal rates within a few years.
Take a look at the Bankruptcy Means Test
Step 1: Your last 6 months gross income monthly average must be below the state median income in order to file Chapter 7.
Step 2: If your income is a little higher you may still be eligible to file Chapter 7. Consult your bankruptcy lawyer to make this calculation.
Bankruptcy filings can remain on your credit report for up to 10 years. But what happens after those 10 years are up? Does it automatically come off my credit report? Well, it may not be that simple and taking action on your part is always the best idea.
The credit reporting bureau should automatically update the credit report information, but that doesn’t always happen the way it should. Therefore, there are four easy steps you can take to make it happen.
1st: Get a copy of your credit report (it’s free at www.annualcreditreport.com). This will be helpful to you in the event you have to dispute information and it will also provide you with the correct account numbers for such disputes.
2nd: Make copies of your bankruptcy discharge notification, the debt schedules in your case, your driver’s license, your social security card, and a piece of mail (such as a utility bill) that verifies your address.
3rd: Send letters to all three national credit reporting agencies: Experian, TransUnion and Equifax. Briefly point out that you filed bankruptcy 10 years ago and therefore all record of the bankruptcy must be removed. Include the copies you made in Step 2. Never send original documentation!
4th: Wait at least 45 days before applying for credit or taking any action that would make someone look at your report. Once you’ve completed these steps, the bureaus will update your report within 30 days. After this 30 days (usually wait 45 days to give the bureaus time to receive your mailed letter) your report should be clear!
With so many companies downsizing, cutting overtime or simply closing up shop, it is no wonder most debtors say that since their job cut back hours, they have been struggling to pay their mortgage or car note while at the same time, trying to stay current on utilities and pay all the other miscellaneous debt. Their paychecks simply can’t cover all their bills. They have to do something and for many of them, bankruptcy is the best answer.
Don’t let your car get repossessed or your home go into foreclosure while trying to pay on your credit card debt or medical bills. Every time I see this situation, where the client has been laid off or has had their hours cut and have been struggling, I hear that they all wished they had come to see me a lot sooner.
When your income is no longer sufficient to pay all your financial obligations, don’t pick and choose what to pay, seek the professional help you deserve. The bankruptcy laws were designed to help individuals just like you. Let a professional show you how they can help your financial situation and be the means to a better future.
If you are considering filing for bankruptcy and are not familiar with the new laws then you need to study up. There have been several changes that can impact your ability to file and what assets are protected. There is a also the a new test called the “means test” which will determine if you have too much income to file Chapter 7 Bankruptcy. You will instead have to file Chapter 13 Bankruptcy and pay back part of the loan.
Your lawyer is required by law to attest that the information you have presented is accurate. This means that he will have to spend time verifying the data presented to him.
Property values have also changed with the new laws… They are no longer valued at fire sale prices but rather replacement value. This means that debtors are going to look at taking items that are worth more to them. If you are planning a chapter 7 claim then you must have lived in your state for the last 2 years. If you are planning on claiming a homestead exemption that number can go to over 3 years. You’ll need to check your state laws.
Wondering if you can get a student loan after bankruptcy? Sure you can! Actually, the bankruptcy code provides that no governmental unit that operates a student grant or student loan program and any entity engaged in business that includes the making of loans guaranteed or insured under a student loan program may NOT deny a student grant, student loan, loan guarantee, or loan insurance to a person who has filed for bankruptcy or is currently involved in an ongoing bankruptcy case, whether it be a chapter 7 or chapter 13 bankruptcy [11 USC Section 5259(c)].
So what exactly does this mean? It basically means that as long as you are applying for a student loan (financial aid) through a federally insured lending program (FASFA) and you otherwise qualify for aid, you can not be denied a student grant or student loan just because you have file bankruptcy or are currently involved in a bankruptcy case.
Student Loans And Bankruptcy
There a several schools of thought on this complex issue. One view is that if the only way for you to live is to buy groceries on your credit card, then so be it. Another view is to cut up all cards the minute you decide you should file for bankruptcy. So which view is “on the money”? Well… If you are not in a position or will not be in a position to repay debt in the near future, it’s probably not a good idea to use your credit cards or take cash advances. In fact, if you intend NOT to repay the debt, you should not incur it.
In the bankruptcy context, creditors or their attorneys can object to the discharge of recently incurred debt (i.e. cash advances or large credit card purchases). There are complicated rules about this, but suffice it to say that if you are in financial trouble you should NOT be using your credit cards.
If in fact you do end up filing for bankruptcy, the portion of the cash advances or credit card debt you incurred within a recent time period (mainly the last 90 days) could be held non-dischargeable and you could be stuck paying it back, despite the bankruptcy. These objections from creditors or their attorneys are very rare and usually do not result in a repayment of the total debt (sometimes only a portion of it, sometimes nothing at all).
However, when the facts clearly show the debtor used credit cards recently (usually within the prior 90 days) before filing, creditors are much more aggressive about pursuing an objection and court order holding the recently incurred debt non-dischargeable (you have to pay it back). As a general rule, creditors are much more aggressive about taking action against cash advances rather than credit card purchases.
If you have recently taken cash advances or used your credit cards and you are seeking bankruptcy advice, you should disclose this fact to your attorney, as well as the timeframe in which you used them and the amount. This issue once again highlights why it is important to consult experienced bankruptcy counsel to represent you. Your attorney can discuss specific time frames and potential solutions to these types of problems.
With the new bankruptcy laws you must take a credit counseling course during the preceeding 180 days before filling bankruptcy. This must be done with an approved nonprofit counseling agency either individually or with a group. This includes a session conducted over the telephone or the Internet that outlines the alternatives to bankruptcy and must help you perform a budget analysis.
During the meeting you will discuss the means test and whether you qualify to file for bankruptcy.The average length of the counseling session is 90 minutes. The counseling can be held in person, over the phone, or on the internet.
Means Test Revisited
If you want to file bankruptcy, you and your income must go through a mathematical test known as the “means test.” This means test is computed by the Federal court system to determine if you are eligible to file bankruptcy.
The Federal government created this test to keep people from over abusing the bankruptcy system by filing when they don’t have to. The presumption is that if you fail the means test, you are trying to abuse the system. This test can also determine whether you can file for Bankruptcy.
When and if the court system is going to consider whether the person in question is actually going to be eligible to file for bankruptcy, that person’s total monthly wages and other types of income, when reduced, as to the current law, and then also multiplied by a factor of 60, must be higher than 25% of the persons total unsecured debt, or $6000, if the 25% happens to be an amount of less than $6,000.
When you are considering filing bankruptcy you need to keep in mind that there is a cost associated with the process (court filing fee). In an effort to cut down on repeat filers the US Government raised the fee from less than $199 to $274 for chapter 13 filings and $299 for chapter 7 bankruptcy filings. The thought process was that this would reduce the number of people who file bankruptcy frequently to get out of paying debt. The reality is that this large sum has made it more difficult for a person who really is having a hardship to file for bankruptcy.
You must also pay Attorney’s fees which can cost around $1000 – $2000 for a chapter 7 filing and anywhere from no up front fees to $2000 or more got a chapter 13 bankruptcy filing. Additionally, prior to and after filing you must take credit counseling at $50 a pop (free for the unemployed). Essentially if you are considering bankruptcy you need to speak to a lawyer and start to plan for it.