7 Frequently Asked Questions About Filing Bankruptcy
Are you considering filing for bankruptcy? If so, you have questions. In this article, we discuss the top 7 most frequently asked questions by anyone evaluating their situation before filing personal bankruptcy.
Depending on your situation, bankruptcy might be a chance to make sense of an overwhelming financial crisis that leaves you feeling helpless and scared. At the Law Office of Leesa Webster in Redding, CA, we will help you through this tough time. We can answer your questions and ease your mind. After a free consultation, we can help you decide on the best plan of action for filing bankruptcy and moving on with your life without the anxiety from debt collectors.
Should I stop paying my debt if I am filing for bankruptcy?
If you are about to file for bankruptcy relief, continuing to pay certain creditors may be a waste of your money. Whether you should stop paying your creditors depends on;
the types of debt you have;
how soon you expect to file your case, and;
whether you are filing for Chapter 7 or Chapter 13 bankruptcy.
Mortgage Loans
Your mortgage is classified as a secured debt in bankruptcy. This means that your lender has a right to foreclose on your house if you default on your payments. A bankruptcy discharge eliminates your personal liability for a mortgage loan but in most cases, it doesn’t remove the bank’s lien on your property.
As a result, if you want to keep your home, you should continue making your regular mortgage payments during bankruptcy (keep in mind that some jurisdictions require you to make your mortgage payments to the Chapter 13 bankruptcy trustee as part of your repayment plan). An exception to this rule exists if you are getting rid of your second mortgage (or other junior lien) through lien stripping in chapter 13 Bankruptcy. In that case, you don’t have to continue making payments on your second mortgage.
Car Loans
Similar to your mortgage, car loans are secured debts. If you want to keep your car, you must continue making payments on the loan. But if you are paying off your car loan through your Chapter 13 repayment plan, you don’t have to send separate payments to the creditor outside of bankruptcy.
Credit Cards
Credit card obligations are treated as general unsecured debts in bankruptcy. Once you receive your discharge, your credit card debt is wiped out. As a result, if you are about to file for bankruptcy, making credit card payments is typically a waste of your money. But be aware that if you don’t plan to file your case for a long time, stopping your payments can prompt the credit card company to file a lawsuit against you to recover its debt.
Medical Bills
Overwhelming medical debt is one of the most common reasons people file for bankruptcy relief. Luckily, medical bills are general unsecured debts like credit card obligations. Similar to credit cards, paying your medical bills prior to filing for bankruptcy is not money well spent.
Alimony and Child Support
Domestic support obligations such as alimony and child support are not dischargeable in bankruptcy. This means that you can’t wipe out your obligation to pay these debts through bankruptcy. If you file for bankruptcy, you need to continue making your ongoing alimony and child support payments. However, in Chapter 13 bankruptcy, you can catch up on any payments you missed prior to your filing date through your repayment plan.
Utilities
In general, continue making your payments on services you need such as your gas, electricity, water, and other utilities. Failure to do so can result in these services being shut off.
I own a home, can I file for bankruptcy? Will I lose my equity?
The type of bankruptcy you file
There are two types of bankruptcies our office specializes in: Chapter 7 and Chapter 13. There are many differences between the two, but the major difference has to do with the exemptions to which you are entitled. The federal government assumes that everyone tries to pay off their debt, and that if someone has excessive property, they should sell it to pay off their debt. However, bankruptcy is designed to give you a fresh start, not to leave you impoverished, and the federal and state governments often have exemptions. This means that if your property is worth less than a particular dollar amount, you can keep it. In general, Chapter 7 exemptions are much lower, stricter, and offer less flexibility than Chapter 13 exemptions. So, if you file a chapter 13 bankruptcy, you are much more likely to keep your house than if you file a chapter 7.
How much equity you have in your house
Don’t worry, chapter 7 filers, there are still ways you can keep your house. When deciding whether your house is exempt under chapter 7, the trustee only considers the equity in your house. Equity is the market value of your house minus the balance on your mortgages or home equity loan. Many bankruptcy filers have little or negative equity in their houses, so their houses are exempt and need not be sold in the bankruptcy process. However, if you have equity in your home over the exemption limit, you may be forced to sell your house to pay your debt or “buy it back” by paying the trustee the value of your house.
Must both spouses file for bankruptcy?
No, both spouses need not file bankruptcy. If one spouse owes more debt than the other spouse, in many cases it makes sense for just one spouse to file. If both spouses owe many debts, however, then a joint bankruptcy may be a better option. But a joint filing is not a requirement. Unique circumstances require thorough examination of which debts and what property between spouses are jointly or individually owned. Either or both spouses may declare personal bankruptcy, but there is no requirement that both spouses file.
If I file for bankruptcy, will I ever achieve a good credit score again?
You can obtain excellent credit after bankruptcy. After a typical Chapter 7, you not only have no zero debt. You also cannot file another bankruptcy for another eight years. Creditors know this and subsequently consider you an excellent credit risk. For the first few years after filing for Chapter 7, you will not get the best mortgage or auto loan interest rates. However, after a few years of rebuilding your credit, you will get the same rates as everyone else. After 10 years, the bankruptcy will no longer even appear on your credit report. The ability to obtain credit after a Chapter 7 bankruptcy depends wholly on how you use your financial fresh start.
Are taxes dischargeable in bankruptcy?
Yes, under certain circumstances, non priority taxes can be discharged. This must be assessed accurately to be included.
What if I cannot afford to file for bankruptcy?
Our office takes payments for your Bankruptcy and will file upon receipt of full payment. We understand the struggles and accommodate our clients in achieving relief.
How do I start the bankruptcy filing process?
The decision to file bankruptcy is one that should not be taken lightly. Fortunately, the Law Office of Leesa Webster is available to help you from start to finish including a free initial consultation and the complete bankruptcy filing process. If you have more questions about filing bankruptcy or if you are ready to start the process, contact our office today for more information.