Things are viewed as Black or White these days. It’s either left or right, good or bad, hot or cold … and so on. But that’s not how it should be.
Bankruptcy. Some people hear this word and immediately think it is bad. Yes, there are some negative aspects of it, but largely, the positives outweigh the negatives.
PROS
- Your general unsecured debts are forgiven. For most individuals this will be credit cards, medical bills, evictions, repossessions, paydays loans and personal loans … and some taxes. This will not include child support, fines, fees, student loans, and debts resulting from fraud.
- Creditors will actually view you to be more credit worthy after filing for bankruptcy. This is for two important reasons: (1) you are now debt free, so they know at the end of the month you will have more discretionary income than you did prior, (2) they know you cannot file a Ch 7 bankruptcy again for 8 more years. Additionally, as long as you take positive financial steps, you can expect your credit score to be higher than it was 12-24 months after filing.
CONS
- You will need to gather documents for your attorney such as paystubs, tax returns, titles and bank statements
- Your credit will take a dip for a few months
- It will be on your credit report for a few years
At the end of the day you need to decide what is best for you and your family. Ignore the stigma that is associated with filing for bankruptcy, because let’s face it, it is not nearly as bad as people think it is. Besides, only the people you want to know about your bankruptcy will be aware you even filed. Even though it is a “public record” the average person has no way of viewing said record.
With a Chapter 7 Bankruptcy, cases typically fall into one of two categories: Asset v. Non-Asset
An asset case is one in which the trustee finds that there are (1) unexempt assets, or (2) preferential or fraudulent transfers that can be undone. In there situations, there will be funds available to be distributed to the creditors.
With unexempt assets, typically the Debtor (person that filed for bankruptcy) will be able to choose between turning over the asset to the trustee, or paying the trustee an amount equivalent to it’s listed value. For more on what makes something unexempt, please view our bankruptcy exemption page.
With preferential or fraudulent transfers, typically the trustee will go after the person that received the property or funds, however, occasionally the Debtor will volunteer to pay the amount in order to protect the receiving party. This is common with family members or friends.
At the end of the day, what does this really mean for you? First off, if it is an “Asset” case then there is a chance that the Debtor or a family member will have to turn over property or money to the trustee. But secondly, if a case is ever an Asset case, then only those creditors that received a notice of the bankruptcy filing will receive a discharge.
So for example, let’s say that you owe money to ABC Phone company, but at the time of filing you forgot you owed them money so you never listed them as a creditor. If you are in a “Non-Asset” case, then at any point (whether your bankruptcy is open or closed) you can notify the phone company of your bankruptcy, and they have to forgive your debt. To the contrary, if you are in an “Asset” case, then you will need to amend your schedules and notify the phone company of your bankruptcy while your case is still open. If you fail to inform them until after your case is closed, then that debt survives your bankruptcy, and you will owe them that debt. See In re Madaj, 149 F.3d 467 (6th Cir. 1998).
Have any questions we can answer for you, or would you like to schedule a free consultation with one of our attorneys? Use our contact form below.
One of the most common questions we are asked is “How bad will this bankruptcy hurt our credit?!?”
And this question is valid. We leave in a society where virtually all home, car and even insurance decisions are affected by our credit score. So let’s unpack this question further.
I am not going to lie to you and say that a bankruptcy will not affect your credit score at all. Anyone that says that to you is lying. However, what I can say is that a bankruptcy is not a death sentence for your credit score. As with most things, time heals.
The first 1-3 months your credit score will drop. But that is when the rebound occurs. The further you move from your filing date, the less the bankruptcy will hurt your score. Surveying our previous clients, we find that those that came into our office with a score in the low 600’s, had their score rebound back into the 600’s approximately 12-18 months after filing. Those that came in with a credit score in the high 600’s had their score rebound back into the high 600’s approximately 18-24 months after filing.
What can you do to help your score rebound on the quicker side? Utilize credit responsibly. Get a secured credit card, and ONLY use that card for gasoline, and pay it off every month. Don’t use it for any other purposes, and never carry a balance at the end of the month.
What about getting a home loan? If you are looking to get a conventional mortgage, they will want you to be 24 months out of your bankruptcy and a credit score of 620 or higher.
What about a vehicle loan? Surprisingly, it will not be that difficult to get a vehicle loan. However, be prepared for a high interest rate the first year or two.
Something to keep in mind when looking into how a bankruptcy will impact your credit score, is that some creditors will actually view you to be MORE credit worthy after you file for bankruptcy. Why is this?
- They know your are now debt free, and you have more disposable income now to pay your debt, than you did prior to filing for bankruptcy
- They know that you cannot file a bankruptcy again for 8 years (if Ch 7 to Ch 7)
For creditors it is all about risk. The less of a risk that you are, the more likely they will want to loan you money.
When filing for Bankruptcy, you have to file the Means Test with the Court. This is a document that determines whether you qualify for a Chapter 7 Bankruptcy, or if you are filing a Chapter 13 Bankruptcy, whether you are in a 3 year or 5 year commitment.
For the Means Test, there is a chart that lists household sizes, and a corresponding dollar amount. And if your calculated annual income is under that dollar amount, you pass the means test. So the question becomes, “How many people are in my home?” This question is most common in situations where someone has joint custody of children, or when they are perhaps in college. Also, what if they are over 18 years old, or you have never claimed them on your taxes?
The Court takes a “heads on beds” approach. This means they follow the Census Bureau definition of household, which is “all the people who occupy a housing unit as their usual place of residence.” Since Congress never established an exact definition to help determine whether an individual qualifies, the real question becomes whether or not that individual relies on you for the majority of their support. So if you are talking about a college roommate, you will not be able to count them as a part of your household, for bankruptcy qualification purposes.
The law can be unclear, and nearly muddy at times. Do you have a question on whether someone should count as a household member? Reach out to us today at 616-920-0555, or use the Get Started Today contact form below.
A common question asked is whether or not a client needs to take a course before they can file for bankruptcy. The answer is yes.
However, and this is a big however, this course is not something that needs to be taken in person. All of our clients here at Russell, Tighe & Alexander take an online course, which they can take on their desktop, laptop, tablet or phone. This course takes about 60-75 minutes and if you are one of our clients, the cost is included in our fee of $999. Once you complete the course you will receive a certificate that is valid for 6 months.
Now what exactly does this course cover? The course teaches money management skills to help Debtors. It covers areas like budgeting, responsible use of credit, money management and dealing with financial emergencies. This course is very helpful for individuals that want to brush up on their financial literacy skills.
Now, we fully understand that not everyone that files for bankruptcy does so due to poor money management. We get it. Divorce, injury, illness, death, loss of employment, and sometimes bees (yes, we have seen it) can put situations out of your control, and give you no other choice out. Unfortunately, those individuals have to take the same course as well.
If you have any further questions on this course, or you want to speak with an experienced bankruptcy attorney, give us a call at (616) 920-0555, or use the form below.
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