You may be facing financial difficulty that seems like you can’t escape. You’re looking for options and came across the possibility of bankruptcy. But there are several types, which makes it difficult to understand which kind, if any, might be right for you. That’s exactly why many people come to our firm and ask: What is personal bankruptcy, and is it an option for me? At Bankruptcy Done Right, we’re committed to helping people make the right choices about their financial future, which means providing the information and guidance they need. So, if you’re in a similar situation, below are six facts by a bankruptcy lawyer in Philadelphia.
Fact 1: Bankruptcy eligibility is pretty broad.
Are you even eligible to file for bankruptcy? While there is no standard eligibility rule to file for bankruptcy, there is probably one certain type of bankruptcy you’re eligible for (or one that makes the most sense for your situation). That’s one of the areas on which Bankruptcy Done Right can advise you. We’ll review your debts, income, goals, and more, and then we will advise you on the type of bankruptcy that will benefit you the most.
There are a few requirements when you do file. For example, you need to live in the district where you file for bankruptcy. In addition, if you have previously filed for bankruptcy and need to file again, there may be some unique requirements. Here are answers to some additional questions about eligibility.
If I’m married and want to file for bankruptcy, does my spouse need to file with me?
Your spouse does not need to file with you if you’re filing for Chapter 7 or 13 bankruptcy. In fact, if you file alone, your spouse’s name and Social Security number will not need to be in the bankruptcy record. However, you will still need to answer a question on the bankruptcy form about your spouse’s income.
Can I file for bankruptcy even if I’m able to pay my bills on time?
You may be paying your bills on time each month, but the balance isn’t decreasing because of compounding interest. Even so, paying those bills may leave you with barely enough money left over. Some people file for bankruptcy to help them get out of this seemingly never-ending bind.
What if I work full time and make decent income?
Even if you have a good job and a paycheck, you may still be eligible for bankruptcy. This option is all about helping people get rid of debt they cannot otherwise relieve – even if they have consistent income.
What if I do not have much equity?
Equity does not have much to do with bankruptcy eligibility. If you and your spouse jointly own a home but the bills are in only your name, you may qualify to use the “joint exemption” in Pennsylvania. Filing for bankruptcy protection may mean that you still have to pay back some or all of your bills over several years, but you will still be paying far less that you would have if you didn’t file.
Fact 2: You do not need a certain amount of debt to file for bankruptcy.
There is no threshold of debt that you will need to have to file for bankruptcy protection. However, there may be better options for helping you pay down your bills. If you could personally reorganize your money management and pay down a few thousand dollars over a fair amount of time, bankruptcy might not be the best move. Instead, you might consider speaking with a financial advisor to come up with a good plan for drilling down your debt. However, if you owe tens of thousands in debt and can only make the minimum payments each month, bankruptcy may be helpful to get you off the payment treadmill.
Bankruptcy may also be a good idea if your car has been repossessed and you need it back to get to work. Even if your car payments are your only debt (or most of your debt), Chapter 13 bankruptcy can prevent the repossession of your car or get it bank if it was repossessed and the creditor still has it.
Chapter 13 may also be helpful if your home is in foreclosure and you cannot get a loan modification. Filing can protect your home and help you catch up with the mortgage. If you have substantial property in your name and bankruptcy is the right move, Chapter 13 may be the best way to go. You will only need to pay back the amount of nonexempt property, and all your unsecured debts will be discharged (except for student loans, support payment obligations, criminal fines, and other “non-dischargeable” debts).
A Chapter 7 or Chapter 13 bankruptcy petition can stop a tax foreclosure or sheriff sale on your home. You will then be able to repay the taxes you owe over several years without losing your ownership interest.
If you’re seeking options, it’s important to know that intentionally transferring your house or other valuable assets into another person’s name will not protect it from creditors. In fact, doing so can be considered a fraudulent transfer, and the bankruptcy court and undo it.
Fact 3: Bankruptcy can do many things for you.
Even if you’re able to file and have debts that bankruptcy can help with, you may wonder: What can bankruptcy do for me? Above all, bankruptcy will give you more time to clear up your debts. Depending on which chapter you file under, you will end up with a fair payment plan that helps get you out of your financial bind and simplify the future. Bankruptcy will also clear your utility bills, including water, gas, electric, and others, to zero and keep them running.
Here are a few additional things (but this is not an exhaustive list):
- Get your drivers’ license back. If you were in an accident without car insurance and someone sued you, bankruptcy protection can help you from having your license suspended.
- Get you out of a timeshare contract. Bankruptcy will allow you to surrender your timeshare, so you no longer have to deal with the unwanted bills associated with it.
- Return your repossessed vehicle. A bankruptcy filing initiates what’s known as an automatic stay. One of the perks is that the creditor will need to return your vehicle to you if it hasn’t sold at auction yet. Then, bankruptcy protection allows you more time to catch up on your missed car payments.
If you need to reduce car payment debt, you can use the “cram-down” method, which reduces how much you owe to only the vehicle’s value. The vehicle needs to be at least two and a half years old from when you purchased it. You can also reduce the interest rate on the car loan if you file for bankruptcy protection.
It’s important to note that bankruptcy cannot clear alimony or child support obligations. Chapter 13 bankruptcy protection will allow you some extra time to pay back support debts, but no matter what, you will need to repay the amount you owe in full. Alternatively, if you are unable to pay support, you could go to family court to see how you might catch up.
Fact 4: Your interactions with creditors and bill collectors will change after you file for bankruptcy.
Bankruptcy initiates an automatic stay, which prohibits creditors and bill collectors from contacting you. The bankruptcy judge can impose financial penalties on any creditor that continues to contact you after it receives notice of the bankruptcy filing.
No matter which chapter you file under, you must disclose all debts and creditors in order to ensure they are treated fairly. That means that even if you favor a certain creditor and do not want to decrease how much you owe them overall, they still must be part of the bankruptcy process. If you do want to pay a creditor back in full, you may still voluntarily do so after your bankruptcy discharge. You may also be able to pay in full if someone else cosigned on the debt. A member of Bankruptcy Done Right can advise you on this decision.
There will be a meeting scheduled for creditors after you file, which will allow them to ask you questions. However, creditors rarely show up for the meeting, as most of their questions are already addressed in the bankruptcy petition. If you are accused of wrongdoing, such as filing for bankruptcy immediately after taking out a loan, your creditor will likely attend the meeting. In addition, a representative of the IRS will likely show up if failing to file tax returns is part of the reason you are filing for bankruptcy. Our team can help you understand what this meeting will entail and why you shouldn’t be concerned about it.
Fact 5: How much you’ll need to pay after filing for bankruptcy may surprise you.
You could have tens of thousands of dollars in debt (or more), and bankruptcy will still allow you to pay what you can afford monthly. The time period over which you will pay will just be extended. That way, you will be on track to eventually clear your loans, bills, and other unsecured debt.
If your circumstances change, you can make changes to your Chapter 13 bankruptcy plan. In fact, many Chapter 13 plans do change, since it’s difficult to predict with certainty at the outset how many debt claims will be filed. Examples of situations that call for a change include:
- You receive a mortgage loan modification that includes the payments you are behind on.
- The car you are paying off through the bankruptcy plan is totaled in an accident.
- You lost your job or source of income and cannot cover the original payment amounts per the bankruptcy plan.
If the edit needs to happen before your case is approved, you would file an amended plan. If it happens after the court approves your case, you would file a motion to modify your plan. These are routine changes.
Fact 6: You will need to take bankruptcy pre-filing counseling.
Prior to filing Chapter 7 or 13 consumer bankruptcy, you must receive pre-filing counseling. It does not have to be in person; rather, the single 30- to 45-minute session can be over the phone or online. After completing pre-filing counseling, you will receive a certificate to file with your bankruptcy case.
If you’re considering filing for bankruptcy, we can give you the information you need without obligation. Contact Bankruptcy Done Right to schedule a consultation.