What is bankruptcy?
Bankruptcy is a legal action to help people with debt problems. A person owing money can often get
a court order that they no longer owe their debts (Chapter 7 bankruptcy) or they can get a court order
that lets them pay their bills in whole or part over 5 years (Chapter 13 wage earner plan) while
protecting them from their creditors.
Why do people file bankruptcy?
- To get out of debt
- To save their home or car
- To stop garnishments
- To stop lawsuits and creditor harassment
- To get help to pay their bills
Common signs that you need to file bankruptcy?
- You cannot pay your bills as they come due
- You are borrowing on credit cards, using loans to make your monthly payments
- You are considering a consolidation loan, home equity loan or a 2nd mortgage
- Collection agencies are calling or writing you, or if you are being sued or garnished.
- You are behind on mortgage payments.
How can bankruptcy help me?
If you are being garnished, a bankruptcy can stop it and can sometimes even get back the money.
If your home is threatened with foreclosure, a chapter 13 bankruptcy can prevent a foreclosure.
Chapter 13 may be the only way to save your home.
If you are behind on your car payments or if a creditor is threatening repossession, a bankruptcy can
stop that.
If you owe taxes, and the IRS is threatening to garnish or seize your assets, a bankruptcy may be the
only effective way of dealing with the IRS.
If your debts are overwhelming, and you can see no way out, bankruptcy can give you a fresh start.
If your income has declined so that you can't meet your obligations, bankruptcy can reduce your
obligations, or possibly eliminate some of them, so you can support yourself in a reasonable and
dignified manner.
What debts cannot be discharged in bankruptcy?
Debts not discharged in bankruptcy include alimony, child support, taxes due less than three years,
student loans, criminal restitution, debts resulting from driving while intoxicated, debts arising from
fraud, debts from substantial uses of credit cards just prior to filing bankruptcy, and debts from willful
and malicious damage to others or their property. There are other smaller exceptions.
The exceptions to discharge are often hard to understand and apply, and the way judges apply the
exceptions varies from state to state. This is an area where the advice of an experienced bankruptcy
attorney is usually required.
Do both husband and wife have to file bankruptcy?
Married people can file separate bankruptcies, or one spouse can file bankruptcy alone. However, if
both spouses are responsible for an obligation, and only one spouse files for bankruptcy, the other
spouse will still owe the debt. The creditors will have the right to come after the non-filing spouse
as if a bankruptcy had not been filed. In circumstances where parties have recently married and
most of the debt is from only one of the spouses, only the spouse that owes the debt needs to file
bankruptcy.
What is the difference between Chapters 7 and 13?
Chapter 7 is often called full bankruptcy, and Chapter 13 is often called a wage earner plan. The
main difference is that in Chapter 7 the bills are wiped out right away with a court order, and you don't
pay anything on them, while in Chapter 13 you make payments for 3 to 5 years although you do not
necessarily have to pay them in full. Both Chapter 7 and Chapter 13 end with a court order called
the discharge that says you don't owe the bills anymore.
People often mistakenly believe you have to pay your debts in full in Chapter 13. Actually you are
only required to pay what you can reasonably pay for at least 3 years to get out of debt in Chapter 13.
Under Chapter 13 you can catch up on your home mortgage, renegotiate your student loans, pay
back delinquent taxes over time or pay back your car. You can force a creditor to accept payments in
an amount usually much lower than you are paying outside Chapter 13.
Who can file bankruptcy in Minnesota?
Most people are eligible to file bankruptcy. In the state of Minnesota the only requirements are that a
potential filer be a Minnesota resident for 3 months, and owe at least $5,000 in debt.
A previous bankruptcy filing may not prevent you from filing. You cannot file for bankruptcy again
immediately, but after a few years you will regain the right to file. After a chapter 7 discharge, you
must wait 8 years before filing again, but in many situations you can file more quickly. Call our office
and we will advise you if you qualify.
Will bankruptcy hurt my credit rating?
A bankruptcy discharge will remain on your credit report for 7 to 10 years, but will eventually improve
your credit rating. Credit ratings are computed in part by looking at how much debt you have as
compared to the amount of credit you have unused. Before bankruptcy people often have several
maxed-out credit cards, and it is these credit cards that are giving them the bad credit rating because
they have much more debt than credit. A bankruptcy discharge creates the opposite situation by
wiping out these debts, so that the filer has not used any of his available credit. Think about it from
the lender's point of view, would you rather lend to someone who already owes thousands of dollars
to others, or to someone who has no other debts, but just filed bankruptcy?
Most of our clients receive credit card offers within the month after they file bankruptcy, and many get
home mortgages within 2 to 3 years of their discharge. The best way to maintain your credit rating in
the face of mounting debt is to file bankruptcy immediately and start over rather than struggle over
time to attempt to pay off debts that are constantly increased by late fees and interest.
|
|
