What is Chapter 7 Bankruptcy
Chapter 7 is a liquidation bankruptcy that is filed to cancel unsecured debt and obtain a fresh start. The filing of the case stops all collection activity, including phone calls, letters, and legal action. Debts associated with credit cards, unsecured loans, and garnishments can be cancelled. You may also cancel loan deficiencies from vehicles or home mortgages. Certain debts, however, can not be cancelled. Contact our office for a free consultation to discuss your specific situation and determine if Chapter 7 Bankruptcy is the best option for you.
What is Chapter 13 Bankruptcy
Chapter 13 is a reorganization bankruptcy. We are able to create a reasonable payment plan through the Bankruptcy Court that will protect your assets and consolidate unsecured debt. Through the filling of a Chapter 13 Bankruptcy, you can: stop home foreclosure and pay the mortgage arrearage slowly over time, stop vehicle repossession or recover a vehicle that has been repossessed, eliminate a second mortgage, and pay child support arrearages, income tax debts and student loans at a reduced monthly rate. Contact our office for a free consultation to discuss your specific situation and determine if Chapter 13 Bankruptcy is the best option for you.
What is a Loan Modification
Loan modifications can reduce the principal balance, eliminate the arrearage, and/or lower the interest rate on your mortgage. Obtaining a loan modification can be a very complicated and frustrating process. We can determine what loan modification programs are available for you and handle the entire process from start to finish. Contact our office for a free consultation to discuss your specific situation and determine if a loan modification is the best option for you.
Do I have to go to Court?
It is mandatory for those who have filed bankruptcy to attend a meeting of creditors. This meeting, also referred to as the 341 Hearing, will take place about 4-5 weeks after the filing of the bankruptcy case. The Bankruptcy Court schedules the hearing date and time. You will receive advance notice of the hearing from both my office and directly from the Bankruptcy Court.
What is the purpose of the Meeting of Creditors?
The purpose of the meeting is to give creditors and the Trustee an opportunity to ask you questions regarding your finances and the bankruptcy papers that were filed with the Court. The hearing will be conducted by a court-appointed Trustee. It is the Trustees’ job to confirm the accuracy of the information that has been presented and to determine if there are assets that can be collected for the benefit of creditors. You will be placed under oath before testifying and must provide State issued photo identification (driver license or State ID) along with your Social Security card. Common questions that are asked at the hearing are as follows:
– Did you review all your bankruptcy papers before signing?
– Are your bankruptcy papers true and accurate?
– Are there any errors or omissions to bring to the Trustee attention?
– Did you list all of your assets, income, and debts?
Your attorney will review the hearing procedure with you in more detail prior to the meeting.
Will creditors be at the hearing to ask me questions?
The meeting is an opportunity for creditors to ask you questions. However, creditors are not required to attend and in many cases decide not to appear. If a creditor or creditor attorney appears at the meeting, you must answer their questions to the best of your ability. The most common situation involves an attorney representing a car finance company appearing to verify your intention with the vehicle and that the vehicle remains insured.
What happens after Court?
In a Chapter 7 Bankruptcy, the Meeting of Creditors will be the only scheduled Court date. Unless otherwise notified by your attorney, you will not need to appear back in Court. You will receive your Discharge from the Bankruptcy Court two months after the hearing date. In a Chapter 13 Bankruptcy, there are additional hearings and requirements. This will be explained to you in detail by your attorney.
How do I rebuild my credit after Bankruptcy?
After filing bankruptcy, you will most likely be concerned about rebuilding your credit. Bankruptcy will remain on your credit report for 10 years. Fortunately, there are certain actions that you can take to ensure that you recover quickly and regain control of your financial future.
Step 1: Check Your Credit Report After Your Bankruptcy Case Closes
After your bankruptcy case closes, it will be important for you to obtain copies your credit reports from all three credit reporting agencies (Experian, Equifax, and TransUnion). These can be obtained by visiting their websites directly or by visiting AnnualCreditReport.com. Review the reports for any inaccuracies, such as discharged creditors still reporting a balance owing. Immediately file disputes with each credit reporting agency to correct the error. Discharged debt that still appears on your credit report will continue to negatively impact your credit.
When reviewing your credit reports, you should also ensure that reaffirmed debts, such as a car loan for a vehicle that you decided to keep, are still being reported properly. Maintaining payments on reaffirmed debt is a powerful tool to rebuild a positive credit history. You must reestablish a positive credit history for your credit score to recover. The majority of your credit score is based on the last two years of your credit history.
Step 2: Avoid Accumulating Bad Debt
After bankruptcy, you want to ensure that you avoid putting yourself in the same position again. A Chapter 7 bankruptcy can only be filed once every eight years. While Chapter 13 bankruptcy may be an option after only four years, the goal is to never have to file bankruptcy again. Take the necessary steps to avoid accumulating high interest credit card debt, personal loans, and payday loans. Create a budget plan and stick to it, eliminate bad spending habits, make timely payments on the outstanding debt you still have, and start a savings account for unexpected situations.
Step 3: Rebuild Credit With Good Credit
You have to reestablish a positive credit history for your credit score to recover. The best way to accomplish this is by properly maintaining payments on the debt you may already have, such as a mortgage, car loan, or student loan. If you do not have any of these, a secured credit card is your best option. Most banks and credit unions are willing to offer a secured credit card to someone after bankruptcy. The secured credit card operates the same as a regular credit card, the difference being that with a secured card, you must have a small amount of money on deposit with the bank to protect them in case of default. Most secured credit cards will still report to the credit reporting agencies so properly paying will work to reestablish a positive credit history.
What are things I should NOT do if I'm considering Bankruptcy?
No one ever expects to have to file bankruptcy. However, once you find yourself in the position of having to file, it is important to avoid doing certain things.
Do Not Incur New Debt:
It is best to avoid incurring any new debt once you are considering bankruptcy. Incurring new debt could result in you being required to repay the debt, among other more serious consequences. Bankruptcy law has several provisions addressing this issue. One provision prohibits incurring debt for “luxury good or services” in excess of $550.00 during the three months prior to filing. Another provision makes cash advances incurred with seventy days prior to filing presumptively non-dischargeable. If you are considering bankruptcy, you should contact Bishop Law Offices for a free consultation before taking any other action.
Do Not Repay Debts Owed to Family and Friends:
Repayment of debts owed to family and friends within one year prior to filing are considered preference payments. Bankruptcy law allows for the recovery of these payments. All creditors are then provided with an equal share. Bankruptcy law does not allow for you to prefer to pay one creditor over another. It is often the case that the money used to make the preference payment could have otherwise been protected during the bankruptcy case. If you are considering bankruptcy, you should contact Bishop Law Offices for a free consultation before taking any other action.
Do Not Transfer Property:
Transferring real or personal property before filing bankruptcy can create many issues. This is true even if the transfer took place up to six years prior to filing. It is often the case that the transferred property that could have otherwise been protected during the bankruptcy is no longer protected. Transfers of property can also affect which type of bankruptcy you file. If you are considering bankruptcy, you should contact Bishop Law Offices for a free consultation before taking any other action.
Do Not Liquidate Retirement Accounts:
Bankruptcy law provides broad protection for funds in retirement accounts. However, this protection is greatly reduced once the funds are withdrawn. In addition, people often use funds withdrawn from retirement accounts to make payments on debt that could otherwise be discharge in bankruptcy. If you are considering bankruptcy, you should contact Bishop Law Offices for a free consultation before taking any other action.
Do I have options to deal with Student Loan Debt?
It is extremely difficult to discharge student loan debt in bankruptcy. While a Chapter 13 Bankruptcy repayment plan can provide relief, there are options provided through the US Department of Education that may be beneficial as well.
There are currently eight repayment plans offered by the federal government:
· Standard: This plan has a set monthly payment that does not change over the course of repayment, which is set at 10 years. There are no special qualifications. Public loan forgiveness and debt cancellation are not options.
· Graduated: Your payments start out small and increase over time as your income theoretically increases as well. Repayment is set at 10 years, and like the standard plan, there are no special qualifications, no public loan forgiveness, and no loan cancellation.
· Extended: Payment is set at 10% to 15% of your discretionary income. Direct and FFEL loans started after Oct. 7, 1998, may qualify, as long as they have a balance greater than $30,000. The repayment term is 25 years, and like the last two plans, public loan forgiveness and loan cancellation is not possible.
· Income-Based Repayment (IBR): This plan is essentially a combination of the extended and standard plans. Payments are set at 10% to 15% of discretionary income, and the IBR payment can never be more than the standard payment. If you do not have discretionary income (as determined by the government), then a qualifying payment is $0. To qualify, you must demonstrate financial hardship. Repayment is 20 or 25 years, after which point the remaining balance is forgiven (this is reduced to 10 years if you qualify for public loan forgiveness.)
· Pay As You Earn (PAYE): Payments are 10% of discretionary income over a repayment term of 20 years, after which point the remainder of the loan is forgiven. If you do not have discretionary income, then a qualifying payment is $0. Direct loans taken out after October 2007 may qualify. The borrower must demonstrate partial financial hardship. Payments will never be more than the standard plan. Public loan forgiveness is an option, as is loan forgiveness.
· Revised Pay As You Earn (Re-Paye): This is the same as PAYE, except for a few important differences. All Direct loans qualify. The repayment term is 20 or 25 years, and payments are 10% of discretionary income (even if more than the standard payment). If you do not have discretionary income, then a qualifying payment is $0. After the repayment term, the remaining balance is forgiven.
· Income-Contingent Repayment (ICR): Payments are the lesser of 20% of discretionary income or the standard payment over a 12-year fixed payment plan. All direct loans qualify, and the repayment term is 25 years. Loan cancellation and public loan forgiveness are not available.
Assess Your Situation
To choose the right plan, ask yourself a few questions:
· Would you qualify for Public Student Loan Forgiveness, which is afforded to people who agree to work in certain public service fields for a term of 10 years in exchange for loan forgiveness after those ten years? If so, then IBR, PAYE, or RE-PAYE are your best bet, since you will not have to worry about increasing interest.
· Can you pay the standard payment? If you can, then you should; choosing one of the longer repayment options can easily double the cost of your loan. If not, continue reading.
· Even if you cannot make significant payments now, do you expect that you will be able to within a few years? If you anticipate a dramatic increase in income relatively shortly, then the graduated plan, which is still 10 years, is probably the best balance.
· Can you demonstrate financial hardship, and was your loan taken out after 1998? Any of the income-based repayment plans may be an option (Extended, IBR, RE-PAYE, ICR), except for PAYE, which only applies to loans started after October 2007.
· Are you dealing with financial hardship and your situation is unlikely to change? IBR, PAYE, or RE-PAYE will be your best options as all those offer loan forgiveness after a period of qualifying payments.
Call Your Loan Servicer
Before you make the call, make sure you have a copy of your most recent bill, as well as information about your chosen plan. Loan servicers tend to discourage borrowers from choosing payments such as IBR and the PAYEs because they require more time and paperwork, so also be prepared to be firm and assert your right to pick the most beneficial plan for you and your situation. Of course, file all the requisite paperwork once you’ve selected your plan.
If you have unmanageable student loan debt, contact Bishop Law Offices for a free consultation to discuss all of your options.