Bankruptcy bandwagon and the buzz bordering it

Bankruptcy blindfolds you. Blinded and bewildered by it, you will be barking up the wrong tree for about a 7 to 10 year time period, which also depends on the map you chart out and the route on which you start. A big thanks to the change in the Bankruptcy law, the requisites have become strident and stricter in character than what they were some years ago.
      Answering queries and inquiries about bankruptcy

The Fundamental basics

1. What is dissimilar between Chapter 13 and Chapter 7?
2. Is the Chapter 7 Bankruptcy the right choice for me?
3. Chapter 13—when and how does it make sense?
4. Can the selection of the form of bankruptcy to be filed be my prerogative?

 The Procedure

1. Before filing Bankruptcy, do I consult a Credit Counseling Agency?
2. Is there any kind of constraint on the type of Debt that can be dismissed?
3. Is there a choice that I have under Chapter 7 to not dismiss some of the debts?

The After-Effects

1. How is my Credit affected after Bankruptcy?
2. Restoration and rebuilding my credit- how do I go about it?
3. How early can I start considering much larger loans, such as a credit against collateral?

1. What is dissimilar between the Chapter 7 and the Chapter 13?

Chapter 7 Bankruptcy, if filed for, culminates in a considerable amount of unsecured debt being written off within a period of 90 days from the date of filing. This bankruptcy will reflect for 10 years on the credit-report. For your debts to be forgiven or forgone, part of your property- like the home that you possess or costly items like expensive pieces of art and jewellery or high priced consumer electronics, would have to be sold off and the proceeds would be distributed amongst your lenders.
       Chapter 13, in fact is a plan of repayment, wherein you arrange 3 or 5 year program with the creditors. The bankruptcy filed under Chapter 13 would remain on the credit report up to seven years. However, this kind of Bankruptcy allows you to keep almost all your property which includes your house.

1. Is the Chapter 7 Bankruptcy the right choice for me?

If you own no property or possession to lose or if you do not have any funds left to clear debts after your essential monthly expenses have been paid, then Chapter 7 would prove to be best suitable to you. Though, Chapter 7 would wipe your slate clean, you would probably lose most of your valuables.
               The extent and amount that you would’ve to give up would depend on where and how long you have been living in that place for. This has been   explained by Howard Ehrenberg, the managing partner of a bankruptcy specialist law firm- SulmeyerKupetz, based in Los Angeles. If you have been a resident of the state in which you are presently living for less than a 730 day period, it would be compulsory for you to follow the exemption regulations of that state where you were dwelling before you moved. The introduction of this prerequisite was necessary to prevent individuals from moving base to another state that had more “attractive” exemption rules and then filing for bankruptcy the subsequent day, stated Ehrenberg.

The regulations of Exemption differ to a great extent between the states. In Texas and Florida, for instance, individuals who file for bankruptcy can keep possession of their home irrespective of its worth, however most of the other states let off only a certain volume of the home equity and/or part of the other possessions or property.

The exemption of other assets- property, bank accounts or retirement savings accounts also varies widely (Point to make note of – Income from Social Security accounts , individual retirement accounts , 401 (k) accounts is exempted when bankruptcy is filed, federally).

Here is a comprehensive list of the Exemptions made by state.

1. For which situations is Chapter 13 recommended?

This sort of bankruptcy is suggested to debtors who have missed payments due to interim difficulties like a death in the family or a loss of job but shall be able to catch up if given time, pronounces Jay Fleischman, an attorney for bankruptcy cases, who works with the Fleischman Law Firm in Newyork. Once Bankruptcy is filed under Chapter 13, then a repayment plan is arranged all rates of interest are eliminated as part of it.

1. Can the selection of the form of bankruptcy to be filed be my prerogative?

The more promising Chapter 7 is recommended to be filed keeping in mind the conditions imposed by the present rules of Bankruptcy. As per these regulations, an individual is eligible only if the average income of the previous six months, that is before filing for bankruptcy, is less than the median of the state in which the individual resides. As per a research conducted by Steve Elias, who wrote “The New Bankruptcy Law” and is a bankruptcy attorney, 85% of individuals who file for bankruptcy are not more than the median.
           If the individual’s income exceeds the median of the state, a supposed “Means” test would have to be taken. The eligibility to file bankruptcy under Chapter 7 would fail if the filer has sufficient disposable income and he can use it to clear $ 10,000 or one-fourth of the unsecured debt in a time period of five years, as per Ehrenberg.
            However, if you do not succeed in this test, you still have a chance to file bankruptcy under Chapter 7 by requesting the judge under extraordinary circumstances.

1. Before filing Bankruptcy, do I consult a Credit Counseling Agency?

         Yes, you need to report that counseling was done within a period of six months before you filed the bankruptcy papers; however there is no need of submitting the certificate of completing that period until the next 15 days once it is filed. If you are recommended to opt for an independent plan of repayment rather than bankruptcy filing, it shall be a black spot on your own papers if you decide to proceed with filing bankruptcy. If this is done, Chapter 7 filing would be dismissed or changed to Chapter 13 once you agree to it.
                  Over and above this, both the filers, of Chapter 7 and of Chapter 13 will to have to complete a personal course of Financial –Management, to get out of Bankruptcy. This is to be either done in person, online or on the phone.

1. Is there any kind of constraint on the type of Debt that can be dismissed?

Tax bills of the past, alimony amounts and donation towards child-support can never be dismissed. In rare circumstances, student loans can be forgiven. If you can give proof of health-problems preventing you from continuing to work, then you can be excused, however this is one threshold that most people are unable to pass and there have been only one or two rare instances.
               Creditors are also entitled to have objection if a few unsecured debts are dismissed like large-scale luxury purchases of more than $500 or cash advance made within a time period of 90 days of the bankruptcy filing. A cash advance of an amount of about $750 or more than that obtained within a 70 day time period before bankruptcy was filed is also non-dischargeable.

1. Is there a choice that I have under Chapter 7 to not dismiss some of the debts?

This is dependent on the equity amount you already own in the properties. In theory, a debt obligation can be retained after bankruptcy with a signature on the reaffirmation agreement between you and your creditor. By signing such an agreement, you are making a commitment to carry on making payments towards the debt, even once all the debts that you owe are settled.
                The second option available is “Asset redemption”, which means purchasing the asset from a lien holder at its replacement rate.
                Surrendering the property, like the car against which you have taken a loan, to a trustee, who in turn will put it up for sale and repay the lien owner, hand over the sum of exemption to you and dole out the remaining amount amongst the unsecured creditors.
                A distinct Statement of Intention with the actual bankruptcy papers declaring the three alternatives you have picked up would have to be submitted. If this is not done, as per Ehrenberg, at any point of time, the creditor may take back the asset.

1. How is my Credit affected after Bankruptcy?

Obviously, at the time you file bankruptcy, it is notated on your report of credit. Credit score which is a unique number used by creditors to make an evaluation of the credit-worthiness of debtors is likely to be hit. How much damage would be done depends partly on how much higher it was before your filing (score range can be from 300-850 and the higher the range, the better it is). The number of accounts you have is also included in bankruptcy. This is explained by Craig Watts, the manager of consumer affairs in Fair Isaac Corporation, a score calculating company.
                 Credit expert and “The Ultimate Credit Handbook” writer - Gerri Detweiler says that scores can fall up to the 400 score range which is on the lower side for obtaining new credit. If you already had delayed payments as well as delinquent accounts, bankruptcy cannot sink it further than that. However, the good news here is that it will not stay in this state forever. Negativity in bankruptcy does not mean there will never ever be a possibility for good credit.

1. Restoration and rebuilding my credit- how do I go about it?

Most defaulters fear taking on fresh credit once they have filed bankruptcy as this was the reason for them being in deep waters.
            However, this might not be the right attitude, especially if you propose to take auto finance or credit against collateral. You score could hit a mark of above 600 within six months, if you follow the Credit-rebuilding program given below.
                     Firstly, assure all your accounts enlisted in Credit reports, are included in bankruptcy. They must show zero balances for filing under Chapter 7. Though these accounts shall reflect on the credit report for until 7 years, you can convince your creditors to not bring them to the notice of the bureaus.
                     Secondly, secure fresh credit cards. Seeing your bankruptcy record, credit card firms shall not be very willing to offer new credit to you but you can obtain a secured card, which is essentially a regular one and has a backing of security deposit that would be in possession of the card supplier until you hold the account. The credit limit assigned to you would be equivalent to your deposit amount and the entire sum would be returned on the closure of the account or when you upgrade to an unsecured regular card. High rate of interest and a fixed annual fee are the traits of a secured card.
                      Next in line is the “Piggy backing” strategy of credit-rebuilding which is not only fast but perfectly legal as well. This suggests that you “piggy back” on a friend or relative’s credit by asking him or her to include you as an approved authorized user on either one or perhaps more card accounts. You have no responsibility of the bills or no access to the cards unless a copy is forwarded to you by the original card holder. Your bankruptcy, in no way, shall affect the credit record of the principal cardholder. Though, you get immediate advantage of the original cardholder’s credit history, the possible shortcoming is the damage that can be caused to your credit if the primary benefactor lands in financial difficulties.

1. How early can I start considering much larger loans, such as a mortgage?

There is no need to hold on to the expiry of your bankruptcy notation on the record before you plan to apply for mortgage or a car loan. A mortgage can be obtained within a time span of a year after filing a bankruptcy. Most lenders would like to see timely payments being made on different accounts, for almost a year’s time. However, the lowest interest rates might not be offered to you.