Chapter 7 or Chapter 13 Bankruptcy
What Is Chapter 7 Bankruptcy?
If you are faced with financial difficulties and bankruptcy is your only option, you should definitely be aware of the process for filing Chapter 7 bankruptcy. It is legally known as Chapter 7 bankruptcy for it is the chapter designated in the bankruptcy law. Chapter 7 bankruptcy is also known as the liquidation bankruptcy. It is called liquidation bankruptcy because during this process, your assets (at least some of them) will be sold at a bankruptcy auction to pay off the creditors. Exactly what is involved in a Chapter 7 bankruptcy filing?
Engage a bankruptcy lawyer to represent you
You should not take filing bankruptcy lightly. Bankruptcy is a life changing event and it should be undertaken with caution and under the advisement of professional bankruptcy lawyer. You can certainly file bankruptcy yourself, with many websites such as nolo.com providing the necessary forms to do so. But do you want to take the chance and miss filing something crucial? Forgetting to file one particular form can mean that you will lose some valuable asset to the creditors. Bankruptcy lawyer is there to answer any question you have regarding your specific situation, and to help you retain the most assets legally.
Obtain credit counseling
Part of the Chapter 7 bankruptcy filing, you are required by law to attend credit counseling course. This can be done in a classroom environment or through online courses in the comfort of your own home. The purpose of the credit counseling is to make sure that you become educated in the importance of money or financial management. It is a 2 part course, one is pre-bankruptcy credit counseling, and the last is the post bankruptcy credit counseling. Basically at the end of this credit counseling, you should be better equipped to handle all sorts of financial situations so as to avoid another bankruptcy filing.
File bankruptcy petition
In order to file for bankruptcy, you will need to submit your bankruptcy petition to the bankruptcy court of the state you are living in. The petition has a lot of bankruptcy specific forms and supporting documents such as tax return, pay stubs, bank statements, credit card statements and more.
Receive automatic stay
Once you have submitted your bankruptcy petition to the bankruptcy court, all the creditors listed in your bankruptcy petition will be notified of your intention. As such, the creditors are bound by law to grant you the automatic stay stature. Automatic stay means that the creditors are not allowed to contact you or harass you for the payment of the debt until it is resolved in the bankruptcy court.
Attend 341 meeting
341 meeting is also known as the meeting with the creditors. This meeting is attended by yourself, a bankruptcy trustee, and possibly your creditors. In this meeting chaired by the bankruptcy trustee, you will be asked to confirm the bankruptcy petition you have filed. The bankruptcy trustee will ask you questions to check the validity and accuracy of your bankruptcy documents. If any creditor you have listed in your bankruptcy petition appears in the 341 meeting, it normally means that the creditor is there to challenge your bankruptcy discharge, and that the debt you have incurred with the creditor should be paid for. Most of the time, no creditors show up at the 341 meeting because they have the option to contest your bankruptcy discharge post the 341 meeting.
Wait for the bankruptcy discharge
This is the final stage of your Chapter 7 bankruptcy process. If and when you receive your bankruptcy discharge paperwork, it means that you have successful completed the bankruptcy petition. With the possession of the bankruptcy discharge, it means that you have successfully eliminated all of your unsecured debt (such as credit card and medical bills) and you are no longer liable to pay for them. As for the secured debt, depending on how your bankruptcy petition is structured through the use of exemption, you might be able to keep underlying assets that the secured debt is based on.
In conclusion, filing for Chapter 7 bankruptcy is not an easy thing to do. It requires a lot of paperwork and bankruptcy knowledge to obtain a successful bankruptcy discharge. It is imperative for you to seek the counsel of a qualified bankruptcy lawyer to help you with your specific situation. Just like you would not go to a family doctor for your eyesight issue, you should not attempt to file for bankruptcy by yourself. Leave it to the professionals.
How to file a chapter 7 bankruptcy with a reverse mortgage
If you are among those Americans who are on the other side of 60, then you are liable to get a reverse mortgage to pay off all kinds of debts irrespective of its kind. It is a safe loan based on the equity on your home which protects your home ownership rights.
If you have incurred a huge amount of debt and are planning to file bankruptcy while maintaining a reverse mortgage, then you might wonder how such a legal action can affect your loan and ownership rights. Read on to know how you can file a chapter 7 bankruptcy with a reverse mortgage.
1. Determine if bankruptcy is the best option: Filing a Chapter 7 bankruptcy is often called the worst option as it hurts the credit score in a significant way. So before you file chapter 7 bankruptcy, determine whether that is the only option left for you. Try to find some way out so that you can arrange some bare means to pay off your debts.
2. Know the rules of chapter 7: Before filing bankruptcy, get familiar with the rules and regulations involved in chapter 7. The qualification is based on your income and family size. Your monthly expenses will be deducted from your gross monthly income to see whether you can arrange any amount of money to pay back the loan. If you cannot, then you may qualify for a chapter 7.
3. Sign a reaffirmation agreement: If you have taken a mortgage on another property and you cannot pay back the mortgage amount, then before filing bankruptcy, sign a reaffirmation agreement with your lender. A reaffirmation agreement breathes back life in to a debt. If you don’t want to lose a home or the real estate property, then it is better to sign such an agreement where the lender promises not to repossess your property. In exchange you have to pay off the balance due on the loan.
4. Inform the bankruptcy trustee if you give up your home: Even if you have a reverse mortgage on your home, filing chapter 7 demands total liquidation of your property and assets. You need to sell most of your personal belongings by the order of the court, to cover up your debts. This includes your home and any equity built on the home. Inform the trustee if you decide to do it this way.
After going through these steps, the debt associated with the reverse mortgage loan will be totally discharged and you will not have any more legal obligations to repay that loan. But before going through these steps take an expert’s opinion who can guide you through the right direction.
What Happens If I Borrowed Against My Retirement Funds And Then File For Bankruptcy
Many people who have filed for bankruptcy are not aware of the effect that it has on your retirement funds if you have borrowed against it. Hopefully this article can demystify this question so you can rest easier knowing what you are liable for or not.
Will the loan against my retirement plan be discharged in bankruptcy?
As many of you are probably aware, most retirement plans will allow you to borrow against your own account. If and when you do that, and then subsequently file for bankruptcy, the status of the loan depends on the type of bankruptcy you have filed.
If you have filed for Chapter 7 bankruptcy protection, your loan from the retirement plan will NOT be discharged. You will still have to pay yourself back (into the retirement plan) at the end of the bankruptcy. This is because Chapter 7 dismisses the obligations you owe to other people, but since the retirement plan loan is made to yourself, this type of loan will be required to be paid in full.
Generally in the case of Chapter 13 bankruptcy filing, since you are repaying the creditors in installments, the debt will become discharged in the end. But in the case where you have borrowed money against your retirement funds, the bankruptcy court has the final say in whether the loan from the retirement fund is discharged or not. The bankruptcy court has to determine if you have disposable income that you can use for your repayment into the retirement plan. The general rule of thumb is that if you are close to the age of retirement and have minimal savings, then repaying the retirement plan will not be using disposable income, hence your loan from the retirement plan will most likely be discharged.
How does automatic stay apply to the loan against my retirement plan?
Automatic stay is the legal statute that prohibits all creditors from pursuing any collection efforts against the debtors once they have filed for bankruptcy protection. So if you are repaying the loan you have taken out on the retirement loan, does that mean you are protected from this ongoing repayment? The answer is NO. A repayment to the retirement loan is a payment back to yourself, not to other creditors. Therefore you cannot use the automatic stay statute to stop repaying your retirement loan.
Since bankruptcy is such a complicated matter, I would strongly advise you to seek the counsel of a professional attorney to discuss your concerns prior to the bankruptcy filing. You will probably have a lot of questions than answers. The best way to find a good bankruptcy attorney is to ask him/her questions that you have and see how his/her responses. You want to find a lawyer whom you are comfortable with and who can represent you in your best interest.