QUESTION: When should someone file for bankruptcy?
ANSWER: The decision to file bankruptcy is the legal right of every citizen in the United States.
Bankruptcy should be your last resort if you are overwhelmed with debt. Each person’s situation is different and should be analyzed carefully when making a deciding on bankruptcy.
Q: If someone is not a business owner and is going to file for bankruptcy, how should one decide whether to file for Chapter 7, liquidation, or Chapter 13, so-called "wage-earner" bankruptcy in which debts are repaid according to a set plan?
A: To qualify for Chapter 7 bankruptcy relief, you will need to pass a means and income test, which considers how much disposable income you have had each month for the six months before filing. If you do not have sufficient income to repay your debts after paying necessary living expenses, then you will likely qualify for Chapter 7 bankruptcy. If you do not qualify for Chapter 7 under the means and income test, you may still qualify for Chapter 13 bankruptcy, which is a repayment program to pay at least a portion of your debts within three to five years and is supervised by a U.S. trustee.
Q: How much does it cost to file for bankruptcy, and what records are needed?
A: Most Chapter 7 cases are normally done for a flat fee, depending on the circumstances and complexity of each case. Generally, Chapter 7 cases cost $1,200 and up, not including court filing fees, which are currently $306. Chapter 13 cases are more complex, so fees are higher and are usually based on a court schedule of fees, depending on the circumstances of each case, not including a court filing fee, which currently is $281.
These documents (at a minimum) are required to file for bankruptcy: A government-issued picture identification and evidence of your Social Security number, evidence of current income such as pay advices (including spouse’s pay advices) for a 60-day period before bankruptcy, copies of tax returns for the current and previous year, retirement and bank statements, documentation of monthly living expenses, alimony, child support or any other unusual expenses, documentation of any real or personal property, written car valuation estimates, a credit report and a pre-bankruptcy credit counseling certificate.
Q: How much does a bankruptcy hurt a person’s credit, and will it affect the purchase of a house?
A: Chapter 7 will appear on one’s credit report for 10 years, and Chapter 13 will appear on one’s credit report for seven years. Filing a bankruptcy could be the first step in repairing a bad credit situation. Every creditor is different, and each one treats bankruptcy with a different set of rules for determining one’s credit-worthiness. Once you are out of bankruptcy, you can begin to rebuild your credit score as the weight of the old debt is off your shoulders and free from lawsuits of past creditors.
There are many creditors who extend credit to people who have filed bankruptcy. The willingness of a lender to loan you money depends on how you have rehabilitated your credit after a bankruptcy filing. The interest rates are normally higher, of course, but you should be able to obtain credit.
Q: What assets are protected from creditors when filing for bankruptcy. For example, can a car, house or retirement account be touched?
A: In bankruptcy cases, property may be exempt under either state or federal law. Exempt property typically includes all or a portion of a person’s unpaid wages, home equity, household furniture and personal effects. A bankruptcy attorney can inform you as to the property that is exempt in your case.
Q: Is there a limit to the number of times or the time period when a person can file for bankruptcy?
A: There are limits on how soon after a bankruptcy you can file again. If you are considering filing again, speak with an experienced bankruptcy attorney about any possible restrictions.
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