Anastasia Greer
Legal Intern at JUSTLAW
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Critical Issues to Consider Before Filing Bankruptcy

Falling behind on your debt can be one of the most stressful experiences a person has to endure. Whether you are behind on your mortgage, your car payments, or student loan payments, falling behind on any payments is tough to fix. Bankruptcy may offer you a way out. And you’re not alone. In fact, according to the United States Courts, 773,361 people and businesses filed for bankruptcy in 2019. This post explores the key issues you should consider before taking that step.

What is Bankruptcy?

Bankruptcy is a legal process that permits individuals and businesses to receive a fresh start. Bankruptcy may have an impact on other legal proceedings in your life. Upon filing, you will receive, in legal terms a “discharge”, and it will essentially wipe out all of your debts. In addition, any foreclosure or legal action against you will be halted. On top of that, creditors cannot seek payment. Here is your moment where you can finally take a second to breathe.

What are the types of Bankruptcy? Chapters 7, 11 & 13.

For individual debtors, you have the option of filing for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is simple and will wipe out most of your debts through a process of liquidation. A Chapter 7 trustee will seize your property, sell it, and use those proceeds to pay off your debts. Therefore, it is key to note that Chapter 7 bankruptcy could potentially seize all your most valuable assets such as your home and car.

To be eligible for chapter 7 bankruptcy you must meet the means test, or in other words have an income that is low enough to meet the means test formula. If you have a higher income, then you will have to file for chapter 13 bankruptcy. Chapter 13 bankruptcy is for those with a salary or regular income that have the ability to pay their debts through a repayment plan. You also can keep most of your property under this form of bankruptcy. Also keep in mind; your property in either chapter could be kept under certain exemptions. Discuss exemptions with your attorney.

For businesses looking to file for bankruptcy, you will look to Chapter 11 for your needs. This will permit businesses to reorganize themselves and their debt.

What not to do in the early stages of Bankruptcy?

The 90 days before bankruptcy are crucial to a successful filing for bankruptcy. Many people think that because they are filing for bankruptcy in a month or two, they
can just go on a spending spree. They will rack up high credit card bills and more. Doing so is not advisable, especially in the 90 days before you file for bankruptcy because a creditor can claim fraud.

Furthermore, bankruptcy filings forbid fraudulent transfers. Therefore, don’t gift your house to your nephew right before bankruptcy so as to avoid it being liquidated during your bankruptcy case to repay creditors. Trustees, if authorized by the court, can seize the property and you will have a case of fraud on your hands.

Does all my debt get “discharged”?

Unfortunately no. Your credit card bills will get discharged. But your child support payments and taxes? Nope. You still have to pay that.

Worth noting thought, one of the most litigated areas of dischargeable debts is student loans. Whether they can receive approval for discharge is argued around the US, regularly. In order to receive a discharge for student loan debt, you must meet certain standards that show an “undue hardship”. In other words, you will have to show that you cannot maintain a healthy standard of living, your current situation of extreme debt will persist for a significantly extended period of time, and you are doing everything in your power in order to maximize your income.

Your credit will be affected!

Your credit score will be affected unfortunately. It will exhibit that you have filed for bankruptcy. Thus, you will have a tough time receiving a loan in the future. Stay patient though. And take the time to balance whether filing for bankruptcy will be worth it in the long run. Bankruptcy attorney’s will be extremely helpful in this respect.

Finally, be honest!

When filing for bankruptcy, you must provide your income and assets, truthfully. If you try to conceal your assets, you will get in a lot of trouble and most likely have a tough time filing for bankruptcy again. Or you could face severe penalties for a serious crime of fraud. So be honest, please.

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If you decide that you would like to learn even more about a possible bankruptcy, Justlaw is here to help! Speak with one of our attorneys before you do. We have an exhaustive arsenal that you might consider before filing for bankruptcy. Lets get rid of your debt together!

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