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Should I file for bankruptcy?

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Should I file for bankruptcy?

Posted by Erica Steeves on October 8, 2018


Your Credit Minute Show Notes:

 

  • 00:00                                   What’s up, everybody? This is Nik Tsoukales with Key Credit Repair. Today, we’re gonna talk about a word that has a super negative association, a word that people don’t really want to talk about, and that’s gonna be ‘bankruptcy’. Okay, so we get the question all the time: should I file for bankruptcy? And obviously for the sake of fair disclosure, we have to tell you we are not attorneys, we are not bankruptcy attorneys. What we are is credit repair specialists, but there are some very simple things to consider when you’re, uh, thinking of doing a bankruptcy, okay?
  • 00:29                                   First of all, let’s talk about what a bankruptcy is guys, okay? So sometimes, we just use this one word, ‘bankruptcy’, but there’s, there’s more that goes into this. Okay, if you actually look up ‘bankruptcy’ in the federal court system, you’re gonna see what a bankruptcy is, is a protection, okay? So, the full phrase is gonna be ‘bankruptcy protection’, and what it is, is you getting protection from creditors when your finances have gone a little out of whack, okay? Recently, you’ve probably seen 50 Cent, a guy who’s worth, uh … You know, he’s been on the Forbes list of over $100 million and he had to file for bankruptcy. How does this actually happen and why should this happen?
  • 01:12                                   Well, there are a couple of different types of bankruptcies, okay, and I’ll give you the pros and cons of both, and a couple of different super simple ways of thinking about this and approaching them, okay? So personally, you have Chapter 7 as an option and Chapter 13 as an option, and these are probably the two most common bankruptcy. Chapter 7 is really a full discharge of all of your debt. So, you can’t afford your debt, you’re falling on hard times, and what happens is you go to a, um … You go to your local bankruptcy attorney, they’re gonna file a petition in bankruptcy court, they’re going to get you protection from those creditors, from those creditors harassing you, okay, and then the judge is going to approve wiping out all of those steps. Those creditors will charge off those debts. They won’t get any payment from you, okay, and you’re gonna get a clean slate financially.
  • 02:03                                   Now, that doesn’t mean you’re necessarily gonna get a clean slate in terms of your credit. Keep in mind that a bankruptcy is a ten-year mark, okay? Ten years and any time you apply for something, they’re gonna ask you, “Have you, uh, filed for bankruptcy in the last ten years?” It’s quite common. I mean, even if it doesn’t come up on your credit report, most applications are gonna have a little checkbox. Keep in mind, even if it doesn’t come up on a credit report, it does come up on a public records search because a Chapter 7, a Chapter 13, any sort of bankruptcy is a public filing. That information is accessible by the public, okay? It doesn’t mean they’re putting that information on a billboard. No one’s to see it. (laughs) But, it is there in the court’s records, okay?
  • 02:45                                   The second type of bankruptcy that is extremely common is Chapter 13, and one type of bankruptcy that I really think is almost silly for most people. A Chapter 13 is a reorganization of your finances. So, let’s say you have, you know, 15 credit cards, um, you’re a business owner, things falling apart, you’ve, you’ve put yourself on the line personally. Things, things are, are, are … The business didn’t go well and now you’re on the hook for all of these credit cards, okay? But, the business is still going pretty well, okay, or maybe not as well as you want, but it’s still there, it’s still viable. Okay, that’s usually when you file for Chapter 13, and the Chapter 13 works a little bit like … Kind of like a debt consolidation or almost like a debt relief plan, okay?
  • 03:27                                   So, let’s say you have these multiple creditors here that you have to pay, okay? Well, instead of paying them, you’re gonna be paying the court. You’re gonna be paying through a trustee. Okay, this is you. You’re gonna be sending money every month. That money or that amount is gonna be determined by the bankruptcy courts. It’s gonna be an amount that you can afford, okay? And then, the court system is gonna be distributing to each of your creditors until each of those debts have been paid off. That’s usually done over the course of a five year period, sometimes faster. Okay, keep in mind, though … Okay, let’s say you owe $100,000 in debt, okay, and you’re paying off this Chapter 13. You’re gonna pay that, plus court fees, plus attorney’s fees, okay? So, this could quickly turn into $115,000 in debt. I’m not a huge fan of a Chapter 13.
  • 04:28                                   Okay, the only time in Chapter 13 really works is if you’re self-employed, okay? Um, if you’re not self-employed, typically what I suggest is some sort of a debt relief program, and a debt relief program works very similar to this, and the only difference is you’re gonna send your money into a debt relief company. That company is actually gonna save up that money with you, okay, and then they’re gonna use that money to negotiate settlements with each of those creditors, so that $100,000 that you owe could quickly turn into $50k. So, debt relief companies do a great job of negotiating down settlements, and as long as those fees makes sense, um, and they’re affordable and the company’s performance based, meaning they’re only making a percentage of how much they can save you, it’s a grand slam, okay?
  • 05:17                                   The cons of that are it doesn’t offer you protection against those creditors. They can still call you, they can still harass you, they can still chase you, they can still sue you, whereas a bankruptcy, again, it’s ‘bankruptcy protection’, okay? You have protection from the court system. Those creditors cannot contact you, they can’t reach out to you, they can’t harass you. That stops. The court tells them, “Cease and desist. We’re handling things from here on end.” Okay? So, keep that in mind. So again, guys, get Chapter 7 as the big one. Chapter 13 is the one I don’t really like too much, okay?
  • 05:50                                   Um, also, another suggestion is, you know, if you’re a consumer debt or if you’re, if you’re just a consumer, you’re not self-employed, okay, you’re not on the hook for a bunch of business debts personally, then che- Then, bankruptcy is something you really want to think, uh, you really want to think about, okay? If you’re on the hook for $4,000 or $5,000 in, in, in debt, um, bankruptcy might not be the move for; debt relief might be the move for you, okay? Um, consumer credit counseling might be the move for you. Okay, so I’d probably want to explore those options before I even consider speaking to a bankruptcy attorney, okay? Um, and the big reason is, again, that, that bankruptcy’s gonna stay on your credit report for ten years. That’s a pretty big mark, um, and it’s gonna follow you around for a long, long time, okay? What’s interesting, by the way, is I’ve had some people approach me and ask me: should I file bankruptcy, um, even though a debt is six years old? Okay, so the debt is six years old, but it’s big. You know, it’s $30k and all of a sudden, they’re just now getting harassed for the debt. The debt was fairly dormant and they’re wondering, “What should I do?” Well, in a scenario like this, okay, bankruptcy’s not a good idea because six years, this debt is gonna border the statutes of limitations.
  • 07:05                                   If you’ve seen from my previous videos, depending on the state that you live in, guys, you could have a six year statutes of limitations where the debit comes un-collectable. You get up a five year/four year, um, and their basic reporting is only seven years, seven years plus 180 days from the date of last delinquency, so basically seven and a half years, okay? So, don’t go ahead and start paying attorneys to file bankruptcy and do all this crazy stuff if they’re just calling you, okay? You might actually want to stall a little bit if that debt is going to expire in the next month or so, or if it’s, uh, if it’s already expired, based on your state’s statutes of limitations, that’s worth a dispute and a cease and desist to that creditor, telling them, “Hey, you know, beat it. This, this is, this is a dead issue. You’ve written this off many years ago.”
  • 07:50                                   So, guys, this is Nik Tsoukales with Key Credit Repair. Any additional questions regarding how you should approach or finagle bankruptcy versus credit repair versus debt relief, that’s a question our consultants can, can help answer all day and we can steer you in the right direction. Have a great day.

 





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Should I file for bankruptcy?

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Should I file for bankruptcy?

Posted by Erica Steeves on October 8, 2018


Your Credit Minute Show Notes:

 

  • 00:00                                   What’s up, everybody? This is Nik Tsoukales with Key Credit Repair. Today, we’re gonna talk about a word that has a super negative association, a word that people don’t really want to talk about, and that’s gonna be ‘bankruptcy’. Okay, so we get the question all the time: should I file for bankruptcy? And obviously for the sake of fair disclosure, we have to tell you we are not attorneys, we are not bankruptcy attorneys. What we are is credit repair specialists, but there are some very simple things to consider when you’re, uh, thinking of doing a bankruptcy, okay?
  • 00:29                                   First of all, let’s talk about what a bankruptcy is guys, okay? So sometimes, we just use this one word, ‘bankruptcy’, but there’s, there’s more that goes into this. Okay, if you actually look up ‘bankruptcy’ in the federal court system, you’re gonna see what a bankruptcy is, is a protection, okay? So, the full phrase is gonna be ‘bankruptcy protection’, and what it is, is you getting protection from creditors when your finances have gone a little out of whack, okay? Recently, you’ve probably seen 50 Cent, a guy who’s worth, uh … You know, he’s been on the Forbes list of over $100 million and he had to file for bankruptcy. How does this actually happen and why should this happen?
  • 01:12                                   Well, there are a couple of different types of bankruptcies, okay, and I’ll give you the pros and cons of both, and a couple of different super simple ways of thinking about this and approaching them, okay? So personally, you have Chapter 7 as an option and Chapter 13 as an option, and these are probably the two most common bankruptcy. Chapter 7 is really a full discharge of all of your debt. So, you can’t afford your debt, you’re falling on hard times, and what happens is you go to a, um … You go to your local bankruptcy attorney, they’re gonna file a petition in bankruptcy court, they’re going to get you protection from those creditors, from those creditors harassing you, okay, and then the judge is going to approve wiping out all of those steps. Those creditors will charge off those debts. They won’t get any payment from you, okay, and you’re gonna get a clean slate financially.
  • 02:03                                   Now, that doesn’t mean you’re necessarily gonna get a clean slate in terms of your credit. Keep in mind that a bankruptcy is a ten-year mark, okay? Ten years and any time you apply for something, they’re gonna ask you, “Have you, uh, filed for bankruptcy in the last ten years?” It’s quite common. I mean, even if it doesn’t come up on your credit report, most applications are gonna have a little checkbox. Keep in mind, even if it doesn’t come up on a credit report, it does come up on a public records search because a Chapter 7, a Chapter 13, any sort of bankruptcy is a public filing. That information is accessible by the public, okay? It doesn’t mean they’re putting that information on a billboard. No one’s to see it. (laughs) But, it is there in the court’s records, okay?
  • 02:45                                   The second type of bankruptcy that is extremely common is Chapter 13, and one type of bankruptcy that I really think is almost silly for most people. A Chapter 13 is a reorganization of your finances. So, let’s say you have, you know, 15 credit cards, um, you’re a business owner, things falling apart, you’ve, you’ve put yourself on the line personally. Things, things are, are, are … The business didn’t go well and now you’re on the hook for all of these credit cards, okay? But, the business is still going pretty well, okay, or maybe not as well as you want, but it’s still there, it’s still viable. Okay, that’s usually when you file for Chapter 13, and the Chapter 13 works a little bit like … Kind of like a debt consolidation or almost like a debt relief plan, okay?
  • 03:27                                   So, let’s say you have these multiple creditors here that you have to pay, okay? Well, instead of paying them, you’re gonna be paying the court. You’re gonna be paying through a trustee. Okay, this is you. You’re gonna be sending money every month. That money or that amount is gonna be determined by the bankruptcy courts. It’s gonna be an amount that you can afford, okay? And then, the court system is gonna be distributing to each of your creditors until each of those debts have been paid off. That’s usually done over the course of a five year period, sometimes faster. Okay, keep in mind, though … Okay, let’s say you owe $100,000 in debt, okay, and you’re paying off this Chapter 13. You’re gonna pay that, plus court fees, plus attorney’s fees, okay? So, this could quickly turn into $115,000 in debt. I’m not a huge fan of a Chapter 13.
  • 04:28                                   Okay, the only time in Chapter 13 really works is if you’re self-employed, okay? Um, if you’re not self-employed, typically what I suggest is some sort of a debt relief program, and a debt relief program works very similar to this, and the only difference is you’re gonna send your money into a debt relief company. That company is actually gonna save up that money with you, okay, and then they’re gonna use that money to negotiate settlements with each of those creditors, so that $100,000 that you owe could quickly turn into $50k. So, debt relief companies do a great job of negotiating down settlements, and as long as those fees makes sense, um, and they’re affordable and the company’s performance based, meaning they’re only making a percentage of how much they can save you, it’s a grand slam, okay?
  • 05:17                                   The cons of that are it doesn’t offer you protection against those creditors. They can still call you, they can still harass you, they can still chase you, they can still sue you, whereas a bankruptcy, again, it’s ‘bankruptcy protection’, okay? You have protection from the court system. Those creditors cannot contact you, they can’t reach out to you, they can’t harass you. That stops. The court tells them, “Cease and desist. We’re handling things from here on end.” Okay? So, keep that in mind. So again, guys, get Chapter 7 as the big one. Chapter 13 is the one I don’t really like too much, okay?
  • 05:50                                   Um, also, another suggestion is, you know, if you’re a consumer debt or if you’re, if you’re just a consumer, you’re not self-employed, okay, you’re not on the hook for a bunch of business debts personally, then che- Then, bankruptcy is something you really want to think, uh, you really want to think about, okay? If you’re on the hook for $4,000 or $5,000 in, in, in debt, um, bankruptcy might not be the move for; debt relief might be the move for you, okay? Um, consumer credit counseling might be the move for you. Okay, so I’d probably want to explore those options before I even consider speaking to a bankruptcy attorney, okay? Um, and the big reason is, again, that, that bankruptcy’s gonna stay on your credit report for ten years. That’s a pretty big mark, um, and it’s gonna follow you around for a long, long time, okay? What’s interesting, by the way, is I’ve had some people approach me and ask me: should I file bankruptcy, um, even though a debt is six years old? Okay, so the debt is six years old, but it’s big. You know, it’s $30k and all of a sudden, they’re just now getting harassed for the debt. The debt was fairly dormant and they’re wondering, “What should I do?” Well, in a scenario like this, okay, bankruptcy’s not a good idea because six years, this debt is gonna border the statutes of limitations.
  • 07:05                                   If you’ve seen from my previous videos, depending on the state that you live in, guys, you could have a six year statutes of limitations where the debit comes un-collectable. You get up a five year/four year, um, and their basic reporting is only seven years, seven years plus 180 days from the date of last delinquency, so basically seven and a half years, okay? So, don’t go ahead and start paying attorneys to file bankruptcy and do all this crazy stuff if they’re just calling you, okay? You might actually want to stall a little bit if that debt is going to expire in the next month or so, or if it’s, uh, if it’s already expired, based on your state’s statutes of limitations, that’s worth a dispute and a cease and desist to that creditor, telling them, “Hey, you know, beat it. This, this is, this is a dead issue. You’ve written this off many years ago.”
  • 07:50                                   So, guys, this is Nik Tsoukales with Key Credit Repair. Any additional questions regarding how you should approach or finagle bankruptcy versus credit repair versus debt relief, that’s a question our consultants can, can help answer all day and we can steer you in the right direction. Have a great day.

 





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How Bankruptcy Works & When it’s a Good Idea

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Bankruptcy offers a way out of debt by either eliminating it or repaying part of it. The decision on whether or not to file for bankruptcy is however not an easy one. You may end up losing most of your assets or none at all. At the same time some debts are not covered by bankruptcy. To help you in making the right decision let’s look at how bankruptcy works and when it’s a good idea to file for one.

Which Debts are Discharged by Bankruptcy?

Before filing you have to decide on the type of personal bankruptcy that is unique to you financial situation. The process covers consumer debts such as credit cards, personal loans, mortgages and medical debts. Non consumer debts cannot be forgiven through personal bankruptcy. These include alimony, taxes, child support, and criminal restitutions.

It’s advisable to have a bankruptcy attorney go through your finances to ascertain which debts qualify as consumer debts and which ones do not. For example, a student loan can be either depending on how it was used.

 

Types of Personal Bankruptcies

In the United States a person can file for either one of the following personal bankruptcies;

Chapter 7 is also known as liquidation bankruptcy. It involves sale of assets that are not protected by bankruptcy and the distributions of the proceeds to creditors. The proceeds can cover your debts in as little as 3 months. Chapter 7 bankruptcy will be ideal if you don’t have a lot of assets that need protection.

Chapter 13 is also referred to as a debt repayment or reorganization. It’s ideal for debtors who have many or valuable assets and don’t want to lose them. Basically the debtor tables a proposal that shows how he/she plans to clear amounts owed within a given time frame. One gets the chance to clear all debts either partially or in full. You can also have others dismissed entirely.

Your attorney does a “means test” to determine which bankruptcy you are eligible for. In a nutshell, you may not be eligible for Chapter 7 if it’s evident that your income can settle debts under Chapter 13. Similarly, a Chapter 13 bankruptcy may be denied if your debts are too high in comparison to your income.

When is Bankruptcy a Good Idea

When is Bankruptcy a Good IdeaBeing eligible for bankruptcy doesn’t necessarily mean that you need to file for one. It could be that all you need is a little professional advice on how to manage your finances.

You also have to contend with the fact that bankruptcy stays on your credit report for seven to ten years. That said, there are some circumstances that call for bankruptcy;

#1 When debt management programs don’t work

Credit counseling is a service offered by most financial advisors and organizations. You may be advised on how to reduce personal expenses in order to free more of your income to clear debts. Other measures include renegotiating terms with credit companies or other creditors.

When debt management fails, whether it’s due to non commitment on your part or refusal by creditors, then bankruptcy could be your only way out.

#2 When you are being sued

A lawsuit filed by creditors can be tricky when you have no means of repaying and remaining liquid. The judgment could lead to sale of assets or foreclosure on your properties. When faced with such eventualities, filing for bankruptcy could be the only way for you to remain afloat. The process offers you the chance to retain some of your property that would otherwise be auctioned.

#3 When faced with overwhelming medical bills

Most financial woes result from making wrong decisions on investments and credit lines. You may however find yourself faced with bills that are not of your own making. Such include medical bills that are not covered by insurance and are beyond your financial reach. In such circumstances, filing for bankruptcy is advisable; the bill will be discharged without over-tasking your income or your family’s finances.

#4 Insolvency Due to Industry Crisis

More often than not you will find yourself contemplating mortgage as an investment. When the industry is in a boom, then you are all set to make a profit on resale in the foreseeable future; that is however not always the case. Upward adjustments on mortgage repayments can leave you deep in debt. Filing for bankruptcy could be the only way of salvaging your property from mortgage lenders.

The take away

Bankruptcy is a federal court-protected financial tool that gives you a “fresh start” from debt burden. The process becomes part of your credit report for 7-10 years. It can also lead to loss of assets hence should be done as a final result. If you are facing foreclosure, hefty medical bills or a creditor’s lawsuit then filing for bankruptcy could be your only way out. The above information gives you an overview on how to go about it.

Related Article: Life After Bankruptcy



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When is it Time to File for Bankruptcy?

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The decision to file for bankruptcy is not one to be taken lightly. The financial and credit ramifications are huge, and the real costs can go well beyond the initial filing expenses. At the same time, if you’re struggling with unsecured debt that you have no hope of paying off, bankruptcy can be a viable and potentially worthwhile solution.

Whether you need to file for bankruptcy will depend solely on your personal financial situation; The fact that your friend, family member, or favorite online blogger promotes filing for bankruptcy should have no influence on whether you choose to file. Instead, you need to take a long look at your individual financial situation and ask yourself three important questions.

  1. Is Bankruptcy Really Necessary?

Filing for bankruptcy is not something that should be done simply to pay off a few credit cards, and it isn’t a magic solution to pay off an auto loan or mortgage on which you’ve fallen behind.

Filing for bankruptcy is a serious legal proceeding that has long-term financial ramifications that can take years to overcome. In fact, a bankruptcy discharge can sit on your credit reports for up to 10 years, dropping your credit score by dozens if not hundreds of points. This will severely limit your ability to obtain new credit cards or loans, and what credit you do obtain will typically charge high rates and fees.

Furthermore, a recent bankruptcy can disqualify you entirely from obtaining a home mortgage loan, even if you intend to use a government-insured loan like an FHA or VA loan, making it necessary to wait several years after filing to attempt to obtain a mortgage. Depending on how low your score drops after filing, you may need to wait even longer for your credit to rebound before you can buy a house.

In other words, if you have any other options for getting your debt under control, you should explore them long before you seriously consider filing for bankruptcy.

  1. Will Bankruptcy Actually Help?

The types of debt you can discharge through bankruptcy will depend on the type of bankruptcy you file, and some types of debt can’t be discharged through any form of bankruptcy whatsoever.

Specifically, Chapter 7 bankruptcy — also called liquidation bankruptcy — can only be used to discharge specific unsecured debts like credit card or medical debt. Secured debts or other legally protected debts cannot be discharged through Chapter 7 bankruptcy. The list of non-dischargeable debts includes:

  • Auto loans
  • Home mortgage or property liens
  • Most student loans
  • Back taxes
  • Child support payments
  • Alimony payments
  • Government imposed restitution, fines, or penalties
  • Debt from fraud or embezzlement
  • Debt from willful and malicious acts

Furthermore, while you can’t discharge auto or mortgage loans by filing for Chapter 7 bankruptcy, the bankruptcy process can result in the liquidation of your assets — which can include your car and house. This means you could lose your home or vehicle by filing for Chapter 7 bankruptcy.

If you’d like to retain your assets and/or don’t qualify for Chapter 7 bankruptcy, the next common option is Chapter 13 bankruptcy, also called reorganization bankruptcy. However, filing for Chapter 13 bankruptcy won’t actually result in any of your debts being discharged. Instead, you’ll be given a three- to five-year repayment plan based on your income and debts.

  1. Do You Have a Plan to Rebuild Your Credit After Filing?

The final question to ask yourself before deciding to file for bankruptcy is whether you have a plan in place for what happens after your bankruptcy is complete, particularly if you file Chapter 7 bankruptcy and discharge your current credit lines. That’s because bankruptcy tends to tank your credit score, which means rebuilding your credit will need to be a priority — and it won’t be easy.

Qualifying for new credit with a fresh bankruptcy discharge on your credit reports will be an uphill battle, and you’ll likely need to turn to pricey subprime credit cards or deposit-required secured credit cards. You may also have challenges qualifying for non-credit related needs that involve a credit check. This can include applying for housing, like a new apartment, as well as necessities like utilities and cellphone plans.

Bankruptcy as a Last Resort

If, after asking yourself these three questions, you still believe that bankruptcy is the right option to deal with your debt, then you’ll need to now decide how to tackle it. While you can legally file for bankruptcy on your own, the data indicates that you’ll have significantly more success by hiring a professional to file on your behalf. Bankruptcy is a complicated legal process with wide-spread consequences, and hiring a professional is often well worth the additional financial costs.

 

 

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Personal Bankruptcy What You Need To Know

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You are very likely familiar with the concept of bankruptcy, but you may be less familiar with the fact that there are actually two different types of bankruptcy you can file as an individual. Millions of Americans file for bankruptcy every year, whether they have overspent, lived outside of their means, or been faced with a devastating financial event, such as enormous medical bills.

Before you are able to file for bankruptcy, you will be required to meet with a credit counselor. This person will walk you through all your options and may even help you come up with a plan to repay your debt without having to file for bankruptcy. However, if it turns out that filing is your best option, you’ll want to know the two types of individual bankruptcy and what they will mean for your financial future.

Chapter 7

What is it?

When an individual files for Chapter 7 bankruptcy, they are asking to have all or part of their debt discharged after their liquid assets are used to pay some of the existing debt. Liquid assets are anything easily converted to cash, such as the contents of a checking or savings account. Each state has different laws about which types of accounts are exempt from paying debts under these circumstances, so it’s best to ask your credit counselor about this before you file.

Why would I need it?

If your income is on the low side (less than the median family income in your state), you would qualify to file for Chapter 7. Your liquid assets would then be used to repay as much outstanding debt as possible. Much of the rest would be discharged. (Usually student loans cannot be discharged, but under certain circumstances, they can be.)

Chapter 13

What is it?

Under Chapter 13 bankruptcy, you are simply asking your creditors for some time and space to reorganize your debts and work on paying them down. Corporations often file for a similar type of bankruptcy, and it often helps save them from going under completely. As an individual, it can be the thing that saves you from losing everything you currently have. Of course, it will still have an effect on your credit, so should be considered as a last resort when possible.

Why would I need it?

If you do not pass the means test (your income is the same as or greater than the median family income in your state), then you will only be eligible to file for this type of bankruptcy. Under Chapter 13, you will get to keep many of your possessions (such as your home and car) and continue to pay down the debts associated with them, but in a more structured way.

Chapter 11

What is it?

Similar to Chapter 13, Chapter 11 bankruptcy helps filers free themselves from overwhelming debt by allowing creditors to work with individuals to come to an agreement about the amount that will be paid.

Why would I need it?

It may seem that Chapter 11 bankruptcy should be listed before Chapter 13, but in reality, Chapter 11 is reserved for those who have exceeded the debt limits set forth in Chapter 13. So if you have more than that, and must still file for bankruptcy, you may only qualify to file for Chapter 11.

If you’re considering filing for bankruptcy, then you might already understand how it will affect your credit for many years to come. Before going through with filing for bankruptcy, consider delving into credit repair first. It could be a better alternative you haven’t explored.

 

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Is it wise to purchase a car following a bankruptcy?

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In the past, purchasing a car after filing a Chapter 7 bankruptcy was not an option for most borrowers. However, as lenders have become more desperate to get their inventory off of the lot, purchasing a vehicle after bankruptcy may be a viable option – but is it a good idea?

One of the issues borrowers run into when trying to get approved for a vehicle immediately after filing their case is that their debts are not yet officially eliminated. While a filing does halt creditor collection attempts, the filing of a case doesn’t mean that all of your obligations have been wiped clean. You still need to give creditors time to object your case and the elimination of debt that you owe. From the time of filing until your case is closed can last anywhere from 90 to 120 days.

Financing a Car Following Bankruptcy

If your bankruptcy has recently been completed, you might be wondering if it’s a good time to buy a car. Some people are able to free up their income enough (due to discharged debts) that they can pay cash for a vehicle. Others will need a loan.

Despite having a previous bankruptcy, it is possible to receive financing after you file for bankruptcy – but that approval may come at a price. Lenders may be eager to extend credit even before you receive your discharge to take advantage of your financial standing by charging outrageous interest rates. Although you may be anxious to reestablish your credit, it’s important to take the time to look for positive opportunities and trustworthy lenders.

Pros:

Financing a vehicle can most certainly help you re-establish your credit history. It gives you an opportunity to make on-time payments over an extended period on a significant debt, which contributes to a positive credit report. Financing is also the best option if you are not able to pay cash for a vehicle.

Cons:

Unfortunately, many lenders see recent bankruptcies as an opportunity to take advantage of borrowers with poor credit and will charge interest rates as high as 29%.

However, bankruptcy in this day in age doesn’t carry the same type of stigma that it did 10, 20, and even 30 years ago. Even the more mainstream car dealers and lenders are open to doing business with those that have a bankruptcy on their report. If you can show that you have a steady and reliable source of income, it may even be possible to obtain a manageable rate of interest.

If you are interested in receiving financing for a new car, it’s a good idea to explore finance options and terms that credit unions, banks, car loan lenders, and dealers are willing to offer in your area.

When’s the best time to get a new car?

Whether you plan on paying for your new vehicle in cash or applying for a loan, it’s best to wait until your bankruptcy is dismissed and your case has been closed. This waiting period can vary depending on what type of bankruptcy you have filed for.

Chapter 7:

In a Chapter 7 bankruptcy proceeding, it is normal to get your Notice of Discharge from the clerk of course between 90 and 120 days after the court has met with your creditors.

Chapter 13:

Chapter 13 proceedings operate differently. Chapter 13 is a continuous case that generally takes between three and five years to satisfy. If you need financing for a new vehicle while you are in a Chapter 13, you will need to obtain permission from the court before you can purchase one. This will often involve filing a motion with the court. Contact your Chapter 13 trustee office for more information on how you can do this.



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How Long Does A Bankruptcy Affect Credit Score

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Bankruptcy can damage your credit score for as long 7-10 years on average depending on the type and the amount of debts before bankruptcy was filed.

Nobody wants to file bankruptcy due mostly to the fact that it is very detrimental to your credit score.  At filing, the total credit rating of the filer can plunge from between 160 points and 220 points.  In laymen’s terms, that is enough of a drop to take a person’s good score and bring it down to a financially-devastating, bad credit score.

But bankruptcy is often a better option than allowing debts to continue to accumulate, which can do even greater damage to a credit rating. With debts piling up, many in this financial situation find themselves making late payments, becoming delinquent on accounts, opening new lines of credit, etc… This can cause a mud slide of credit ruin. If you’ve found yourself in this predicament then it may be time to file for bankruptcy.

And, while a bankruptcy can severely damage your credit score, that doesn’t mean that bankruptcy has to be the end of a good credit rating forever.

How Long Does Bankruptcy Stay On The Record

There are two types of bankruptcy – Chapter 13 bankruptcy and Chapter 7 Bankruptcy:

•    Chapter 7 Bankruptcy – Also known as a liquidation bankruptcy, a Chapter 7 bankruptcy will discharge most debts in a few months after filing, but the record of the bankruptcy itself usually remains active on a credit report for 10 years.

•    Chapter 13 Bankruptcy – During a chapter 13 bankruptcy many (and possibly all) debts will remain active while a 3-5 year payment plan is worked out with the collectors.  Some debts may be discharged depending on the filing individual’s income.  While a Chapter 13 usually comes off a credit report after 7 years some of these debts may remain active for longer.

Bankruptcies tend to vary greatly between individuals and situations, and while the above lengths of time that a bankruptcy remains active on a credit report are considered the general rule, there are many cases of the bankruptcy record dropping off much sooner, sometimes within only 2-3 years.

Rebuilding Your Credit

It’s never too early to start rebuilding your credit after filing for a bankruptcy.  While it is true that your credit score will most likely take a significant blow from filing for a Chapter 13 or Chapter 7, it may still be possible for you to acquire a secured credit card, auto loan, or rent-to-own loan.  This is important, because without a new line of credit you may find yourself without any credit history once the bankruptcy and debts drop off after 7-10 years.

It’s also important to make sure that all of the discharged debts have stopped reporting to the major credit bureaus after the bankruptcy so that they aren’t bringing your credit score down unnecessarily.

Credit Absolute can help.  By researching and challenging unfair items on your credit report, Credit Absolute can help to eliminate the erroneous charges that may be continuing to damage your credit after a bankruptcy.  Contact us today.



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Life After Bankruptcy: 6 Steps to Bouncing Back

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Taking steps to rebuild your life following a bankruptcy – including your finances, credit rating, and emotional well being – can often feel like a daunting task.

The first step is realizing that there is life after bankruptcy, and it doesn’t have to be a life where you are eternally treated like a financial outcast. In contrast, taking control of your finances following a bankruptcy can be enormously rewarding. How well you rebound from a filing depends on proper strategizing and commitment to safeguarding yourself against future financial damages.

If you’ve recently filed for a Chapter 7 or Chapter 13 bankruptcy, you are not alone. Close to 1 million people filed for bankruptcy on a yearly basis and they are all asking the same question – What now? Here are 6 ways to bounce from your bankruptcy and navigate the next few months of your life.

  1. Pay Yourself

This might seem like an ironic place to start, but it is one of the most important steps to take after filing a bankruptcy. Having a savings is your first line of defense when it comes to protecting yourself in the presence of unexpected events. Start by setting aside 5% of your net income on a monthly basis. Some banks have the option to set up an automatic withdrawal into your savings account, so you won’t even have to think about it.

  1. Set a Realistic Budget

Budgeting is something that a lot of people do, but it is not often used as strong enough of a financial tool as it should. Your budget should include income from all of your sources, as well as realistic numbers of all of your expenses. To ensure that you are sticking to your budget, refer back to it on a daily or weekly basis. Your budget should guide all of your spending decisions.

  1. Rely on Cash

You may be leery of entering into any credit agreements following your bankruptcy, and that’s not necessarily a bad thing. When you are forced to operate with cash, you have to stick to your budget. Make an effort to only purchase necessities, and if your budget allows for a small amount of “play” money every week, take out cash when you get paid and don’t spend a penny over. Eventually this spending habit will become normal for you.

  1. Apply for a Secured Credit Card

The last thing you might be thinking after filing for bankruptcy is getting more credit. However you do need to show some credit responsibility in order to begin improving your credit rating. If you decide to take on some credit responsibility, it’s important to remain cautious. It is not uncommon to receive a slew of credit card offers in the mail following your filing. Creditors know that you will have a time frame of four to eight years before you can file again and are willing to take advantage of your current financial vulnerability. If you can, start with a secured card and rebuild your credit from there – just be sure that institution reports to all three credit bureaus.

  1. Avoid Buying a Car

In general, large purchases are not advisable when you are trying to get back on your feet financially. While some lenders will be willing to give you a loan after a bankruptcy, you’re likely to receive some pretty expensive rates and fees. Furthermore, financing a new car will add to your overall monthly expenses. If you can get by without it, it’s best to continue driving your current car and save the money you would have otherwise spent on a monthly loan payment.

  1. Focus on Your Current Financial Relationships

One of the biggest factors tied into your credit rating is the length of your open accounts. While you could very well apply for a credit card at a new company, it might be better for you to continue positive relations with any existing accounts that remain after your bankruptcy.



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Does a Foreclosure Hurt Your Credit More Than a Bankruptcy

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Foreclosure and bankruptcy are both daunting to consider. However, if you are struggling to keep up with your mortgage payments, this may very well be your final option after a long financial struggle. While both will undoubtedly have an effect on your credit score, minimizing the fallout and setting yourself up for the best chance of credit repair is critical. Depending on your financial situation, one might be better than the other. If you’re facing the decision of a foreclosure or a bankruptcy, here’s what you need to know.

Lender Negotiation

Bankruptcy and foreclosure each carry a separate sense of urgency. Depending on your individual circumstance, one might be a better financial fit. Consider the status of your mortgage: Have you missed a single payment or have your progressed past the 90-day mark? Before you make a critical decision it’s important to talk with your lender first and see how they might be wiling to help. Contact your bank and explain your circumstances. If your money troubles are only temporary, it may be possible to request a period of forbearance or other available options in order to establish your financial stability. If your financial troubles are more permanent however, bankruptcy or foreclosure may be your last option.

The Impact of Foreclosure and Bankruptcy on your Credit Score

Both foreclosure and bankruptcy carry long-term consequences and should not be entered into lightly. A foreclosure will your reflect on your credit score for 7 years, while a bankruptcy will stay on your credit report for up to 10. Although it may seem like living with impacts such as these on your credit score for a decade is devastating, it is essential if you expect to rely on your credit score sometime in the future. If you are at a crossroads in your decision-making, you’ll want to consider the impact of each option against your goals long-term.

Foreclosure vs. Bankruptcy

First and foremost, you want to keep in mind that your credit score is completely unique to you. Because your credit score is a sum of your total credit history, no two consumers will have the same financial impacts profile to profile.

That being said, FICO recently released a report that displayed the impact of various negative items on a person’s credit profile. They used a sample profile with the same credit score (680) to show the impact of a foreclosure vs. a bankruptcy. Under the circumstances of a bankruptcy, the “person’s” credit score dropped between 540 and 560. With a foreclosure? – 620 to 640.

A Chapter 13 bankruptcy’s “wage earner’s” option can in some instances bode more favorably than a property foreclosure. This can show a future lender your willingness to repay debt on a restructured scale. On the other hand, a foreclosure may illustrate a greater willingness to walk away from your property and your credit agreements.

If you plan on filing a total debt elimination, or a Chapter 7 bankruptcy, a foreclosure could very well be a byproduct of this decision. While the opportunity to obtain a clean slate may be a tempting proposal, the immediate impact to your living situation is obvious.  Although foreclosure proceedings generally render a 3-month notice before an eviction, what is your plan after this grace period ends? How will a lower credit score affect these plans?

Conclusion

As stated above, if you’ve fallen behind on your mortgage payment the first step you want to take is working with your lender to restructure payments and avoid damage to your credit entirely. Bankruptcy and foreclosure should only be considered as a last resort. If your mortgage agreement is beyond repair you may be faced with choosing between a foreclosure and a bankruptcy. Based on information released from the credit authority, FICO, a foreclosure may be less damage and less time on your credit report overall.

However, because every situation and credit profile is unique it’s important to make a decision based on your immediate and future financial needs and goals. Before making a decision, speak with a finance expert about your personal situation and what might work best for you.



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How Credit Scores are Affected by Bankruptcy, Foreclosure & More

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There are certainly many things that can negatively impact your credit score, some more than others. If you are worried about your credit or are trying to maintain a good score, it is helpful to know items on your credit report could cause the biggest impact to your score.

Below we’ve outlined four issues which could cause the biggest drop in your credit score. We have also listed the average point loss for each item.

How Much Does a Bankruptcy Lower Your Credit Score?

The higher your starting score, the more points you’ll lose for filing for bankruptcy. For a person with a credit score of 680, filing for bankruptcy will lower your score by 130-150 points. For a person with a score of 780, filing for bankruptcy will cost you 220-240 points.

How Much Does a Foreclosure Lower Your Credit Score?

According to FICO, if your credit score is 680, a foreclosure will drop your credit score on average by 85 to 105 points. If your credit score is excellent, at 780, a foreclosure will drop your score by 140 to 160 points. In other words, the higher your credit score, the more your score will be affected.

How Much Does a Late Payment Lower Your Credit Score?

One late payment could have a more significant impact on higher credit scores. According to FICO data, a 30-day delinquency could cause as much as a 90- to 110-point drop on a FICO Score of 780 for a consumer who has never missed a payment on any credit account.

How Much Does a Car Repossession Lower Your Credit Score?

Having your vehicle repossessed could cause a 100-point drop in your credit score. And late payments, collections and public records generally all stay on your credit for about seven years, according to myFICO.com.

For most people, the above issues are unavoidable but in certain circumstances, it is a choice to make depending on your financial situations. If you are swimming in debt and are debating filing for bankruptcy, for instance, you may want to consider a few things first. In that scenario, if your credit score is already low due to late payments, high debt-to-income ratio, and delinquent accounts, you could potentially improve your credit quicker by filing for bankruptcy as it would not have as big an impact on your score but would give you the fresh start needed to start rebuilding your credit.

For assistance with credit repair or counseling, contact Credit Absolute.



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