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Understanding Chapter 13 bankruptcy
If you have large amounts of debt that you are struggling to pay, you probably are wondering what your options are. You may be considering bankruptcy but do not want to lose all of your assets.
One option is Chapter 13 bankruptcy. To file, you must meet certain eligibility requirements, but it has certain advantages over Chapter 7 if you are able to meet the repayment plan requirements.
Eligibility requirements
The United States Courts discusses that one of the biggest eligibility requirements is that you have a regular income. This means that only wage earners, sole proprietors and self-employed individuals are eligible to file Chapter 13. Another requirement is that the individual is up to date with all required tax returns. There are also limits as to how much unsecured and secured debt the person may have.
How it works
Under Chapter 13 bankruptcy, the debtor must submit to the court a list of all creditors and the amounts of debt from each one, details about the debtor's income, a list of all property and a list of all monthly expenses.
How does debt collector harassment differ from misrepresentation?
The Fair Debt Collection Practices Act (FDCPA) serves as a way to protect people like you from falling victim to unfair collection practices on the part of debt collectors. Unfortunately, they sometimes utilize underhanded, coercive or even threatening tactics in their attempt to get your money.
So how can you handle this behavior? Is there a way to distinguish between harassment and misrepresentation, as well?
Harassment vs. misrepresentation
The Consumer Financial Protection Bureau examines harassing behaviors by debt collectors in addition to the misrepresentation they sometimes knowingly engage in. Harassing behaviors differ from misrepresentation in several ways, with a primary one being the aggression behind the actions taken.
When harassing you, a debt collector's main motivation is often to threaten or scare you into compliance. They use many tactics to this aim, including the implementation of vulgar or crude language, and even downright physical threats to your home, property or person. As an example, they might threaten to physically remove you from your house, or paint a vivid picture of what homelessness could look like for you.
Is this debt collector misrepresentation?
When dealing with debt collectors, misrepresentation is likely not the first concern that springs to mind. Most people fear harassment instead, as this often involves actual physical threats or the use of crude and vulgar language.
However, the Fair Debt Collection Practices Act (FDCPA) also covers misrepresentative behavior, as it often has an equally negative impact on the victim. But just what is it, and how can you identify it?
Debt collectors making empty threats
The Consumer Financial Protection Bureau examines debt collector misrepresentation. This manifests in many ways, but often shares a key trait of the use of deceit in an attempt to fool or trick you into cooperation.
For example, if a debt collector makes a threat that they have no power to make good on or have no actual intention of carrying it out, this falls under the umbrella of misrepresentation. Common scenarios include threatening you with an arrest when they do not have an arrest warrant.
How do you change your credit card spending behaviors?
Dealing with debt is a difficulty no one wants to face, and it can take a long time for you to dig yourself back out of it. Needless to say, once you gain your footing again, the last thing you want is to end up in a position where you fall back into debt.
So how can you avoid it? What credit card spending behaviors can you change or alter to help you stay out of debt after your recovery?
Change how you view your card
The Balance discusses ways you can avoid falling into debt due to credit cards. Many involve changing the way you look at the cards themselves. For example, most people think of credit cards as borrowed money. You use money you do not have and pay it back later. Unfortunately, this trap ends up with many people taking on debt they otherwise could have avoided.
Try thinking of your credit card as another debit card instead. Only spend what you have the means to pay off immediately; do not think in terms of what you can or cannot do in the future.
Understanding the means test for Chapter 7 bankruptcy
Chapter 7 bankruptcy allows Maryland residents to discharge many eligible debts. However, you must pass the means test, which evaluates your income, assets and obligations, to qualify for Chapter 7.
If you live in Maryland and struggle with mounting debt, learn more about whether you may be eligible for discharge by taking the means test.
What is the means test?
When you file a Chapter 7 bankruptcy petition, the court will determine whether your average income in the past 180 days exceeds Maryland's median income. If your earnings fall under that threshold, you can move forward to request a discharge. In 2021, the median income for a single person in the state is about $5987 a month or $71,839 a year.
Can I qualify with a higher income?
If your income exceeds the state median for your household size, the bankruptcy court will require documentation of your monthly expenses. These must not exceed the amount deemed reasonable for Maryland residents. If your approved expenses reduce your qualifying income based on the state's calculation, you can move forward with Chapter 7 discharge.
How the automatic stay shields debtors from collection activity
Many people file bankruptcy to shield their remaining assets from collection proceedings by their creditors. Unless these debtors have filed a bankruptcy previously, they may have no awareness of the automatic stay and how it can protect them from ongoing collection actions.
How the automatic stay works
A "stay" is a court order that directs a party to stop pursuing a designated action. In bankruptcy, the automatic stay a powerful took that shields debtors from collection efforts. The stay forces creditors to cease all collection activity, including phone calls, collection actions, foreclosures, evictions, and garnishments. The stay remains in effect until the bankruptcy court issues an order discharging the debtors' obligations.
The automatic stay does not protect certain obligations. These obligations include child support payments, alimony payments, certain tax debt obligations, and criminal proceedings that involve both a debt and criminal portion. In this latter example, the automatic stay will stop the debt portion of the proceeding, but not the criminal portion. Creditors can ask the court to lift the stay as to their claims, but such motions require a heavy burden of proof, and must show that the automatic stay is not serving its intended purpose. Additionally, the automatic stay will terminate after 30 days if you have filed for bankruptcy in the previous year.
What do you know about recovering financially from bankruptcy?
It took some time for you to become comfortable filing for bankruptcy, but you took the step. Have you made plans to make the most of your decision?
U.S. News & World Report offers suggestions for rebuilding your financial household after filing for bankruptcy. Take steps to improve your monetary health and maximize the advantages bankruptcy provides.
Keep your bankruptcy documents close
Rather than putting your bankruptcy paperwork out of sight, keep it in a convenient place. That way, you have the documents on hand if you apply for a loan and need to provide your bankruptcy petition. You may also need the documents as proof to show creditors you do not owe them money.
Create a plan for rebuilding your credit
While you may apply for secured credit cards to mend your credit score, step carefully. Now is the time to reevaluate your relationship with money and the road that led to you filing for bankruptcy. Rather than apply for and use credit without thinking, create an intentional strategy that supports your values surrounding money.
Who collects tax debt?
If you fall behind on paying your taxes, you will end up with tax debt that the government will keep trying to collect. You cannot get rid of this debt through bankruptcy, so you have to take it seriously.
The IRS is not in the business of trying to collect the debt you owe. According to the IRS, it passes this job to private debt collection companies.
The authority
Congress gave the IRS the right to use debt collection companies through the passage of a law. It is completely legal and the only way the IRS will handle overdue tax debt that meets specific requirements.
Collection process
The IRS will originally do the debt collecting. It will attempt to contact you and set up a payment plan or come to an agreement to resolve the debt. If this fails, the IRS may send your account to a collection agency after a year with no contact with you.
Avoid collection
You can delay or avoid a private debt collector getting your overdue tax account by staying in contact with the IRS. There are some situations that will allow you to prevent them from turning over your account. For example, if you were a victim of identity theft that impacted your taxes, communicate this with them and it will stop the collection transfer.
3 tips for dealing with emotional stress during bankruptcy
If you are in debt, you know the kind of stress and anxiety it can cause. If you have thought about filing for bankruptcy, you are one of many ready to take charge of your finances and move forward.
According to the United States Courts, in 2020, bankruptcy filings in the U.S. totaled 544,463. Although filing bankruptcy can be helpful overall, you should prepare yourself to effectively cope with the emotional stress it can create.
1. Talk to a professional
Talking to your friends and family about your financial situation may help ease your feelings of trepidation and anxiety. But if you need additional help coping with the bankruptcy process, reach out to a therapist who can provide you with strategies and ideas for moving forward.
2. Set up a financial plan
At some point during the bankruptcy process, think about your financial goals and budget for the future. Putting a stable financial plan in place can help you take full advantage of the fresh start filing for bankruptcy provides.
Bankruptcy may provide relief from overwhelming medical debts
Increased health care costs leave many Americans feeling helpless or trapped. As reported by NBC News, 72% of survey respondents revealed their medical bills prevented them from homeownership or starting a family. About half of Americans surveyed are struggling with unpaid medical debts worth at least $5,000.
According to Credit Karma, members of the online personal finance community experienced a 9% growth in outstanding medical bills over a one-year period. By March of 2021, its members held a collective $2.8 billion worth of past-due medical expenses.
Medical issues and a loss of income could cripple a budget
Illnesses requiring unpaid time off from work to recover or to care for a family member could result in a growing pile of unpaid bills. Individuals unable to get back to work may begin using credit cards to pay for necessities.
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