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3 questions to ask yourself when you think about bankruptcy
Whether you are a single parent with children in college or a retiree with rising medical bills, keeping debts paid may be challenging. Have you thought about bankruptcy? Do you know if or when you should file?
Here are a few reasons to help you decide if now is the right time to file for bankruptcy.
1. Are bill collectors calling?
If you owe money on your car, house and credit cards and are behind on payments, you may have gotten calls from debt collectors. Do the calls seem out of control? Be aware of your rights. The Fair Debt Collection Practices Act makes it illegal for them to be abusive or use unfair or deceptive ways to collect debts.
2. Do you only make minimum payments on your credit cards?
Making minimum payments on credit cards keeps your account in good standing. That is about all it does. It does not help much to reduce your debt. There is a minimum payment warning on your bill that shows how much money and how long it will take to pay off your balance if you pay only the least amount each month.
How bankruptcy’s automatic stay provides relief from creditors
Having creditors constantly harass you at home or at work may have you scrambling for a solution, and you may be considering filing for bankruptcy. Bankruptcy may not be appropriate in all situations. However, many people dealing with creditor harassment find that doing so offers them relief in this area. How?
According to LendingTree, once you begin a bankruptcy case, something called the automatic stay comes into play. The automatic stay is an order that prohibits creditors from contacting you and trying to collect on your debts while your bankruptcy case is in process. The automatic stay does not temporarily put an end to all collection efforts or debt obligations, but it does stop the following from happening.
Wage garnishments
If you lose some of your paychecks to wage garnishment, this has to stop once the automatic stay takes effect. As long as the stay remains in place, you should be able to receive your paychecks in their entirety.
Is there an order you must repay debts in?
After filing for Chapter 13 bankruptcy, you have obligations to fulfill. It is important that you do this, too. If you fail to fulfill your duties as a Chapter 13 debtor, you have no second option or "fallback" bankruptcy to choose from.
Thus, it is crucial to understand what your obligations are. This includes the way your debts must be repaid, and whether or not there is an order to it.
First debts to pay off
The United States Courts discuss the basics of Chapter 13 bankruptcy, including the obligations that you have as a debtor. Of these obligations, one includes the order you repay your debts and fees in. For example, it is important that you start by paying off all filing fees accrued while filing for bankruptcy. You cannot start the process without this.
After successfully starting, you need to handle priority debts first. This includes child support, alimony payments, and missed payments to employees. In other words, debts that affect the finances of another person.
Talking to your family about bankruptcy
When you decide to file for bankruptcy protection in Maryland, you may encounter experiences where your family and friends ask about your situation. Bankruptcy is nothing to feel embarrassed about and can actually provide new opportunities for a brighter future.
Knowing how to address inquiries about your situation can help you to feel prepared and confident. You can share the benefits of your decision and highlight how your experience has enabled you to make positive changes in your financial habits.
Protecting details
You are under no obligation to share information about your bankruptcy with other people. As such, if people ask about your situation, you can create a concise answer to satisfy questions without oversharing. When you give too much detail, you may feel self-conscious about what others may think of you.
As a general rule of thumb, you should never give too much information about your financial situation anyway because people may view you as incompetent and lose trust in your ability to manage money. This could affect future opportunities.
Can your credit survive bankruptcy?
One of the benefits of filing for Chapter 13 bankruptcy is that you can repay your debt over the course of three to five years. However, during this time, your bankruptcy will be on your credit report and this can lower your credit score.
There are several steps you can take to repair your credit.
Consider a credit card
According to Nerd Wallet, bankruptcy may keep you from qualifying for some credit cards. However, there are still options available to you. You may get a secured credit card. In this situation, you would pay a deposit upfront, and this deposit would become your credit limit. Additionally, you may ask one of your family members to list you as an authorized user on one of their credit cards. These options are temporary measures that allow you to show lenders that you are recovering from your bankruptcy.
Monitor your credit
As you rebuild your credit, you want to keep an eye on it. Do you know what your credit score is? Watch this score every month on your credit card statements if the company includes it. Is this score going up or down? What factors are affecting this score? These questions can help you determine what you might be able to do to raise your credit score.
4 benefits of filing for bankruptcy
Significant debt can happen to anyone, for many reasons. You may have lost your job, gone through a recent divorce or incurred significant medical debt. Filing for bankruptcy may seem like a step backward, but really, it is a way to move forward while protecting the things that matter.
Filing for bankruptcy offers you many potential benefits, some of which you can take advantage of right away.
1. Filing options
As an individual consumer, either Chapter 7 bankruptcy or Chapter 13 bankruptcy may be available to you. Each has its own eligibility requirements, but you typically qualify for either one or the other.
2. Property protections
While Chapter 7 sometimes requires liquidation of property, i.e., selling assets to pay off debts, Maryland law imposes some exemptions. If your property falls under one of these exemptions, you do not have to sell it. Exempt property may include your vehicle and at least some of your equity in your home. It can also include personal property and retirement accounts.
What are reasons to keep bankruptcy paperwork safe?
The process of paying off your debts through Chapter 13 bankruptcy may have felt like an ordeal, but you finally see your bankruptcy coming towards an end. As you contemplate returning to a life free from debt, you must also plan to have your bankruptcy paperwork safe and available should you need it.
It is natural to want to keep your past bankruptcy out of sight and out of mind. However, as U.S. News and World Report explains, there may be times when you will need to provide some of your old bankruptcy documents.
Providing paperwork to a lender
The subject of your bankruptcy may come up if you seek a loan, particularly if you want a major loan to buy a house or a business. Your lender may ask to see your bankruptcy petition or the court's notice of your bankruptcy filing. Providing this information may be helpful since it allows your lender to learn as much about your bankruptcy as possible and not just the simple fact that you went bankrupt.
Can Chapter 7 discharge my tax debt?
If you contemplate filing bankruptcy and owe back taxes to the IRS, you may have heard that Chapter 7 will not discharge tax debt. While generally true, Upsolve.org reports that Chapter 7 can discharge some income tax debts under some circumstances.
To make your IRS debt dischargeable under Chapter 7, it must meet the following criteria:
- It must be three or more years old.
- You must have filed a tax return for it at least two years prior to filing bankruptcy.
- The IRS must have determined the debt amount at least 240 days before you file bankruptcy.
Bankruptcy alternatives
You have two alternatives to bankruptcy when dealing with your federal income tax debt: an IRS payment plan and an Offer in Compromise. Both require you to work directly with the IRS, and neither discharges your debt, only gives you extra time to pay it.
Payment plan
You can apply online for a payment plan. Depending on the amount you owe and the time you believe you need to pay it, you may or may not need to pay a set-up fee. Generally, the IRS does not charge for payment plans of 120 days or less. Longer payment plans have a graduated set-up fee, starting at about $30.
What is the top reason for bankruptcy?
If exorbitant unpaid medical expenses have you seriously considering bankruptcy, you are not alone. CNBC reports that approximately 530,000 American families file bankruptcy every year because of medical debt.
The top six reasons people give for filing bankruptcy consist of the following:
- Medical debt – 66.5%
- Unaffordable mortgages or foreclosure brought about by a drop in income – 45%
- Living beyond their means – 44.4%
- Financially helping friends or relatives – 28.4%
- Student loans – 25.4%
- Divorce or separation – 24.4%
Medical debt
The Affordable Care Act, better known as Obamacare, went into effect in March 2010. Its primary goals included the following:
- To give more people affordable health insurance
- To expand the Medicaid program
- To support innovative medical care delivery methods
Despite its lofty goals, however, the ACA failed to resolve America's health care crisis. Nor did it change the proportion of bankruptcies filed because of medical debt. In fact, in the three years following its implementation, such bankruptcies actually increased slightly, from 65.5% to 67.5%.
What is a gray bankruptcy?
If you are age 65 or older and facing substantial credit card debt issues, you are not alone. The National Consumer Law Center reports that, nationwide, people in this age demographic have approximately four times as much credit card debt as people aged 25 and younger. In fact, people between the ages of 65 and 69 saw their credit card debt increase by an average of 217% between 1992 and 2001.
Since then, you likely have had to rely on your credit cards more and more to make ends meet. Several factors, including the following, probably have contributed to this unfortunate situation:
- Your health care costs have skyrocketed.
- Your Medicare coverage has gaps.
- Your Social Security benefits cannot keep pace with your ever-increasing costs.
- You have depleted what little savings you managed to accumulate over the years.
All of this makes you a prime candidate for the phenomenon known as gray bankruptcy, the term applied to bankruptcies filed by those over the age of 65.
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