Bankruptcy is seen as a fresh start for many people.
Bankruptcy is prominently mentioned in the Constitution. Article 1, Section 8, Clause 4 of the United States Constitution provides:
The Congress shall have Power To… establish… uniform Laws on the subject of Bankruptcies throughout the United States…
Bankruptcy is a necessary option for those with high debt to income ratios. However, it does come with serious consequences. Your credit will be ruined for up to 10 years, the process will cost you atleast 1-2,000$ to file and lenders will be very weary of you. As a Bankruptcy paralegal myself, I would not recommend anyone file for bankruptcy who has less than 10,000$ of debt. Debts can be paid down, negotiated, and so forth without destroying your credit report! However, if you find yourself in the midst of a foreclosure or simply cannot see a foreseeable way to escape, then bankruptcy could be your best option. If you are thinking about this option, consider these 10 strategies.
- Pass the “Means Test”: If you are single and make under $40,000 per year, you will most likely qualify for a chapter 7 bankruptcy. If you are married and your combined income is less than $80,000 per year, you will most likely qualify. Some couples will strategically file for separation during a bankruptcy process in order to reduce their household income, however, the bankruptcy trustee will investigate your living situation to ensure it is a legitimate separation.
- Replevin Orders are often needed to recover property from a debtor, which require the creditor to take you to court. Small items such as toasters, Televisions, or any item that is worth less than $1,000 is often able to be retained if the debtor is brave enough to call the creditor’s bluff. Replevin orders cost money and time. In my years working as Bankruptcy paralegal, it is extremely rare to see any creditor file for a Replevin order on any item worth less than a grand.
- Credit scores can be strengthened after bankruptcy if you obtain a secured credit card and pay it down fast after making small purchases.
- Do not purposefully rack up debts on entertainment(non-essential) items and then immediately file for bankruptcy. Most debts younger than 90 days are generally scrutinized and are considered “fraudulent” debts in many bankruptcy cases.
- Chapter 13 bankruptcies will save your house from being foreclosed upon, however, it will only buy you a few months. If you fail to make payments on your Chapter 13 plan, the foreclosure process starts all over again.
- Chapter 7 bankruptcies will not clear out mortgages and auto loans. Expect to give back those properties after your case has completed unless you enter into a “reaffirmation agreement”.
- Negotiate your reaffirmation agreement with your lawyer or better yet, try to avoid signing into one! See if the creditor will continue taking payments at the same rate as before. Oftentimes, creditors will try to get you to enter into a new agreement with higher rates to benefit themselves.
- Child support is a non-dischargable debt. However, filing for a Chapter 13 Bankruptcy can help you reorganize your child support debt and save you from getting your drivers license suspended.
- Student Loans and owed Tax debt are generally considered non-dischargable. In some rare circumstances, they can be discharged.
- Show up to court! If you don’t get a notice in the mail from your lawyer, call him/her! Missing your court date can cause huge delays and possibly have your case thrown out. It is imperative that before you file for bankruptcy, you save up some personal time off from your employer. The judge doesn’t care about your excuses. If you don’t show up, it takes a lot work from the lawyers, paralegals, and courts to get a new court date. Your lawyer and the paralegals who assist will certainly thank you for making their job much easier!
These are just a few basic tips when it comes to filing for bankruptcy in Chapter 7 and Chapter 13 cases.