bankruptcy-law

What happens when you file for bankruptcy?

You’ve taken the difficult
but necessary step of filing for bankruptcy and may be wondering what your
financial future holds once the dust has settled.

To question what happens when you file for bankruptcy is both natural and responsible. It shows that you’re concerned with the immediate repercussions and are looking forward to the clean slate bankruptcy provides. The fact is, filing bankruptcy does have longstanding effects, each of which can be improved or repaired through time and sound financial decisions. In most circumstances, the results of your bankruptcy filing are overshadowed by the prospect of a brand-new beginning.

what happens when you file for bankruptcy

What does it mean to file for bankruptcy?

Bankruptcy is the legal proceeding involving a person or business that
is unable to repay outstanding debts. The bankruptcy process begins with a
petition filed by the debtor, which is most common, or on behalf
of creditors, which is less common. All of the debtor’s assets are measured and evaluated,
and the assets may be utilized to repay a portion of outstanding debt. The
court will also review your incoming earnings and weigh them against your
monthly expenses.

If your filing is approved, then your debt will be discharged
or restructured appropriately depending on which chapter you filed and the
court’s specific instructions.

There are various types of bankruptcy, commonly referred to
by their chapter within the U.S. Bankruptcy Code. Chapters 7, 11 and 13 are the
most commonly filed chapters and we’ll go further into detail on each of these
options.

Bankruptcy is intended for those who are unable to uphold their financial obligations to creditors and are unable to do so through alternative means.

Different types of bankruptcy you can file

Knowing what happens when you file for bankruptcy depends on the type of bankruptcy you file for. Here’s a quick breakdown of the ways you can file.

Chapter 7 Bankruptcy

Often
referred to as a straight bankruptcy, chapter 7 is the most common type of
bankruptcy. Under Chapter 7, you can eliminate a majority of your unsecured
debts by surrendering your available assets.

When you file for Chapter 7 bankruptcy, typically all collection actions against you come to a stop. This means creditors are no longer be able to garnish your wages, call and demand payment or file a lawsuit against you. If your Chapter 7 bankruptcy is approved, you receive a discharge that releases you from personal liability for your debts.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a plan to reorganize and restructure your debts over time. It’s most often used by large businesses, but it can also help individuals and small-business owners. Chapter 11 is a more complicated bankruptcy filing but can be useful if you don’t qualify for Chapter 13. You have four months to come up with a reorganization plan after filing your petition, but this time frame may be extended up to 18 months. When creating your reorganization plan, each creditor is placed into its own class. Unsecured debts are placed in a separate class and never lumped with any other debts.

Chapter 13 Bankruptcy

Chapter 13 is the second most
common type of bankruptcy and is primarily filed by individuals. Chapter 13 is
intended to eliminate your debt by creating a repayment plan to pay
back your creditors over a three to five-year span. You’ll
make monthly payments to a court trustee, and the trustee
distributes the money to your creditors. At the end of your plan, the
remaining unpaid debts are discharged.

Filing Chapter 13 creates an automatic stay that stops most collection actions, which generally means creditors can’t seek wage garnishments, make calls demanding payment or file lawsuits. Automatic stay can also help protect your home from foreclosure. However, you must continue to pay your mortgage, or your lender can initiate foreclosure proceedings. These are the most common 3 types of bankruptcies but there are others that pertain specifically to certain type of businesses and municipalities.

What happens when you file for bankruptcy?

What happens to your bank accounts when you file for bankruptcy?

You can still maintain your current bank account after you file for bankruptcy, however, the funds in the account may be seized and utilized to pay creditors if they’re not listed as exempt.

What happens to your property when you file for bankruptcy?

This depends on whether you file for
Chapter 7 or Chapter 13 bankruptcy.

You can typically keep your property in
Chapter 13 bankruptcy.  

If you file Chapter 7, you may have to relinquish
some property (although many filers keep most, if not all, of their property).
This depends on whether your property is considered exempt. If your property serves
as collateral for a debt such as your mortgage or car loan, then your property
is considered exempt.

What happens to your credit score when you file for bankruptcy?

Filing for bankruptcy can dramatically reduce your credit score and will remain on your record for 7-10 years depending on the chapter. You can immediately begin to rebuild credit once your bankruptcy is finalized. Proper credit utilization, on-time payments and new lines of credit will help get you back in a favorable credit range.

Do you get out of all debts if you declare bankruptcy?

Most debts can be resolved through bankruptcy but there are some that cannot. Some of those include:

  • Unpaid withholding tax, Social Security tax, income taxes, and other back taxes or tax penalties
  • Mortgage debt
  • Debts incurred due to fraud, larceny, embezzlement, or “willful and reckless acts”
  • Debt that doesn’t belong to you
  • New credit card debt incurred within 90 days before you filed for bankruptcy, if it teaches a certain threshold amount
  • Debt owed due to borrowing against certain retirement plans
  • Court fees
  • Child support and alimony

Does bankruptcy clear student loans?

Student loans can be quite difficult to discharge through bankruptcy. It’s only possible if you can demonstrate an undue hardship that is either permanent or expected to last for a majority of the life of the note.

Do I need to take classes?

You’re required to take two credit counseling courses when filing for bankruptcy. These courses will give you useful information regarding the affect’s bankruptcy has on your credit, along with detailed information on how to manage your credit moving forward. The courses are typically either 30 or 60 minutes each and can be completed online or over the phone for your convenience.

Does bankruptcy affect your family?

Bankruptcy filing only has an effect on family if you held a joint asset or debt with the family member. You’ll have an opportunity to list any jointly held debts or assets during your filing and its especially important that you do so.

Conclusion

Bankruptcy and its subsequent affects have played a part in the lives of millions of Americans from the wealthy elite to blue collar workers. It continues to serve as a tool best utilized when a fresh start is the most viable option. Knowing what happens when you file for bankruptcy can help you decide if it’s the right choice for you. While the hit to your credit and possible loss of assets can be disheartening, the results of sticking to a road filled with responsible financial decisions will ultimately lead you to a better and brighter tomorrow.

The
Babi Legal Group is driven by the opportunity to help our clients achieve the
dream of financial freedom. We are experts in the bankruptcy field and will
guide you step by step through the process.

Contact us today for a free consultation!

medical-bankruptcy

4 Important Questions About Filing for Medical Bankruptcy for Medical Bills

Unexpected medical expenses can put a serious strain on your finances and make it very difficult to take care of your financial obligations.

Even taking care of day to day expenses like food and utilities can become a stressful juggling act when you’re trying to pay off past due medical expenses.

Depending on your situation, filing medical bankruptcy may be your best and most viable option. If bankruptcy is your best option, then by no means are you alone. Medical debts were responsible for half the bankruptcy filings, according to a 2016 Kaiser Family Foundation study. This means many Americans found themselves in a similar situation, and after exhausting other options, determined bankruptcy was the path to a brighter financial future.

In fact, enough Americans filed for medical bankruptcies that, in 2016, Congress enacted what’s called the Medical Bankruptcy Fairness Act. This act prevents filers from having to liquidate up to $250,000 in interest or equity of certain types of property.

medical bankruptcy bill

What does it mean to file for medical bankruptcy?

Bankruptcy for medical bills is a court proceeding in which a judge and court trustee examine your income vs. expenses along with your assets and liabilities to decide whether to discharge your debts, making you no longer financially responsible.

This can only include medical bills incurred before your case filing date. Any medical expenses incurred post-filing will not be included in medical bankruptcies, even if they’re incurred while your case is still under review.

Even if medical bills are your primary reason for filing, you’ll still need to list all of your debts both secured and unsecured on the official documents. This gives the judge an accurate representation of your financial situation and allows for a proper and well-informed determination.

What are the requisites to file for medical bankruptcy?

In order to receive assistance with your medical debts, you’ll need to qualify for either Chapter 7 or 13 bankruptcy.

In order to qualify for Chapter 7 bankruptcy, the debtor must earn less than the state median income on a monthly basis and submit to an examination of their financial records, including income and expenses, along with secured debt (mortgages and car loans) and unsecured debt (medical bills, credit card bills, personal loans, etc.).

Chapter 7 bankruptcy is commonly referred to as liquidation bankruptcy. This type of bankruptcy is generally meant for people with limited incomes who do not have the ability to pay back all or some portion of their debts. Chapter 7 bankruptcy may result in you needing to liquidate any or all assets you have available to help pay down your debts.

Not only can Chapter 7 bankruptcy clear medical debts, but it can also clear many other types of debt as well.

Chapter 13 bankruptcy acts more like an extended payment plan for your medical bills. Chapter 13 allows those with enough income to repay all or part of their debts as an alternative to liquidation. It’s bankruptcy for those whose most significant problem is dealing with creditors’ demands for immediate payment, not lack of income.

 To be eligible to file for Chapter 13 bankruptcy, an individual must have no more than $394,725 in unsecured debt, such as credit card bills or personal loans. They also can have no more than $1,184,200 in secured debts, which includes mortgages and car loans. These figures adjust periodically to reflect changes in the consumer price index.

How to prevent medical bankruptcies

While bankruptcy may be a viable option, there are additional ways we can help alleviate the burden of costly medical expenses. We have a long history of successfully negotiating final settlement agreements with many creditors that have saved our client’s thousands. We work directly with your creditors to obtain the best settlement offer possible on your behalf.

This option is available dependent upon medical debt amounts and how many creditors are owed. While it may not be an ideal option for every situation, we’ll gain a thorough understanding of your financial situation to confirm rather this or any other bankruptcy alternatives are right for you.

What happens when you file for medical bankruptcy?

Filing for medical bankruptcy not only effects your medical bills, it can also affect other areas of your life related to your finances.

On your credit

Your bankruptcy filing will be accompanied by a substantial negative effect on your credit, unfortunately. The filing will show on your credit report for 8-10 years and could make obtaining new lines of credit, favorable interest rates, and other credit-related privileges more difficult. Fortunately, we provide every one of our clients with helpful and time-tested tips on how to start rebuilding their credit after filing.

Hospital Bills

Any hospital bills due previous to your filing will be covered, and there shouldn’t be any impact on your presently held health insurance. Your doctor’s office may be aware of the filing, and that could result in a reluctance to engage in financial transactions in the future. Fortunately, by law, you cannot be refused medical treatment in an emergency.

Your family

Bankruptcy filing only affects your family if you held a joint asset or debt with the family member. You’ll have an opportunity to list any jointly held debts or assets during your filing, and you must do so to ensure all involved parties are knowledgeable of the situation.

Other consequences

You’ll also be required to take two credit counseling courses when filing for bankruptcy. These courses will give you useful information regarding the affect’s bankruptcy has on your credit, along with detailed information on how to manage your credit moving forward. While medical bills aren’t necessarily a form of credit that can be misused, you’ll still be able to gain an understanding of how paying or not paying your medical debts can affect you in the future.

The courses are typically either 30 or 60 minutes each and can be completed online or over the phone for your convenience.

Conclusion

While filing for medical bankruptcy may not be something you’re looking forward to, it can provide you some much needed relief from your medical debts along with almost any other debts and give you the clean slate you need to take control of your finances.

We understand that medical bills can be unexpected and cause undue stress and financial burden on honest, hardworking people. Helping our clients find their financial stride and regain command of their financial future is what drives us. We offer a completely free initial consultation to help determine rather you’re eligible for bankruptcy. We’ll also discuss any other alternatives we may have to help alleviate your medical expenses and get you back on the right track.

 The longer you wait to take control of your medical bills, the worse they can get, so contact us now to schedule your free initial consultation.

We look forward to helping you!

Filing for Chapter 7 Bankruptcy? The Bankruptcy Requirements to Know

Chapter 7 Bankruptcy, also known as liquidation bankruptcy, is the most common bankruptcy case—63 percent of over 800,000 bankruptcy cases in 2016 were Chapter 7. It discharges most of the unsecured debts that include medical bills, personal loans, and credit card debts.

Being the quickest, most common, and the simplest type of bankruptcy to file doesn’t mean that filing Chapter 7 is that easy. There are very important bankruptcy requirements you need to understand in order to receive a discharge and protect your assets.

The Bankruptcy Means Test

Before filing for bankruptcy, you must have what’s known as a means test analysis performed, which determines whether your income is low enough to warrant a Chapter 7 bankruptcy filing. This formula is important in determining the type of bankruptcy you are eligible for, but you must also know the exceptions to means test when filing for bankruptcy.

If you undergo a means test and it’s determined that your income is too high, you may be required to file a Chapter 13 bankruptcy. This is considered a reorganization bankruptcy where you will need to pay a portion of your debts. A chapter 13 bankruptcy offers various alternatives to restructuring your debt over a 3, 4, or 5 year period.

If you have high expenses such as car loans, mortgage, daily expenditures, and taxes, you may still qualify to file for Chapter 7 bankruptcy even with a high income. One of the most important considerations is determining the amount of your monthly disposable income.

Passing the Means Test

In most cases, you must pass the “means test” for you to qualify for Chapter 7 bankruptcy. However, filing for bankruptcy doesn’t have to be a nightmare because there are just simple things to be considered before you can qualify. They include:

1. Little or No Disposable Income

The means test will compare your average monthly income with the median income of a household similar to yours. This is done for six months prior to filing bankruptcy. If your income is below the average income per household, you will qualify to file a Chapter 7 bankruptcy.

The average income per household varies from state to state. Hence, the means test must put your state in mind when doing the calculations.

2. Expenses against Income

It is not the end of the game for you if your income exceeds the average monthly income per household. You can still qualify to file for a Chapter 7 bankruptcy. However, you will not qualify automatically as you must fulfill the next bankruptcy requirements.

In this case, you will need to go to the next stage of the means test. This is the balancing stage that weighs your total income versus the expenses you have. If all your expenses versus your income amount to little or no disposable income, you will be allowed to file a Chapter 7 bankruptcy.

Every city, state, county, or metropolitan region has its allowed amounts of expense categories. Some of these include all the necessities, transportation, and housing. Any expenses on luxury will not be used in the means test.

If your total expenses are still less than your average income, you may not qualify to file for Chapter 7 bankruptcy. This presumes you still have some disposable income, which you can use to pay your debts. However, this presumption may be rebutted in certain circumstances to allow you to still qualify for chapter 7 bankruptcy.

Do I qualify for Chapter 7 after passing the test? Not yet. There are other things that you must consider before qualifying for this bankruptcy.

Prior Bankruptcies

If you had filed for Chapter 7 bankruptcy before and received a debt discharge, you need to wait eight years from your prior case filing before filing another bankruptcy.

However, if you filed before and did not finish the case or did not receive a discharge, you’re allowed to file for a Chapter 7 bankruptcy anytime. Of course, you must still pass the means test for the second filing.

If you filed a Chapter 7 bankruptcy, failed the means test but received a discharge under Chapter 13 bankruptcy, you need to wait for at least six years from your prior case filing before filing for a Chapter 7.

If you filed for Chapter 13 bankruptcy but did not complete the case or failed to get a discharge, you can file for Chapter 7 bankruptcy anytime.

Prebankruptcy Credit Counseling

Filing for bankruptcy is a tiring and stressful process that can put you through tremendous pressure and stress if you’re not careful. This is why it is a requirement that you go through a pre-bankruptcy credit counseling course at least six months before the bankruptcy filing.

The course is provided by an approved agency, which will give you a certificate after completion of the course and the certificate is only valid for 6 months. You must produce this pre-bankruptcy credit counseling certificate in court when filing for bankruptcy.

If You Qualify for Chapter 7 Bankruptcy

Things don’t end at Chapter 7 qualifications. Filing for any bankruptcy that is fit for you is a long process that involves a lot of analysis and review of your paperwork. Completing everything and obtaining a final discharge can take you up to four months.

The first thing you need to do is file a petition with your designated bankruptcy court. You will need to file various bankruptcy pleadings, which details your income, expenses, assets, liabilities, and overall financial standing.

Secondly, you must be prepared to spend some fees, including paying an attorney, credit counseling, and payment for petition filing. You must also be prepared for potential loss of privacy and financial control.

If You Don’t Qualify For Chapter 7 Bankruptcy

All hope is not lost if you don’t qualify for Chapter 7 bankruptcy. You can still file Chapter 13 bankruptcy. This bankruptcy will require you to make monthly payments for a period of three to five years. This payment will undergo a strict budget, which is monitored by the court.

Chapter 13 bankruptcy is still not a bad idea because it will still help you handle some debts that will not go away in Chapter 7, and Chapter 13 has the ability to restructure vehicle payments, mortgages and property taxes to stop repossessions and foreclosures.

Let’s Help You Fulfill Bankruptcy Requirements

Filing for a Chapter 7 bankruptcy will help you get relief on some debts. It is very important to understand the Chapter 7 bankruptcy requirements as you may be at risk of losing your hard-earned assets, such as homes, vehicles, and savings if those assets are not properly exempted. However, you must also understand that rebuilding yourself and getting back on track can be a rigorous process. Bankruptcy will stay on your credit report for up to ten years.

Therefore, it requires a lot of consideration before you go through it, even when you meet all bankruptcy requirements. If you want help going through a bankruptcy process, contact us, and we will connect you to a bankruptcy attorney near you.