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Evaluating if Chapter 13 bankruptcy is the right choice
Financial crises can be overwhelming and challenging. In such situations, individuals may consider different debt relief options. One of these is filing for Chapter 13 bankruptcy, a legal process that allows individuals to restructure their debts and pay them off over time.
Understanding Chapter 13 bankruptcy and assessing its suitability for a given situation is vital. This form of bankruptcy provides certain advantages, but it also has its limitations and obligations. Recognizing these factors can guide an individual in making an informed decision.
Understanding Chapter 13 bankruptcy
Chapter 13 bankruptcy allows debtors who are filing for bankruptcy the chance to repay some, if not all, of their debts. Under a repayment plan that must be approved by the court, a debtor will make affordable payments to their creditors. Repayment plans under Chapter 13 Bankruptcy are typically set up to last between three to five years.
When is the best time to file for bankruptcy during foreclosure?
Once your home goes into foreclosure, you need to work diligently to save it. Otherwise, the lender will sell it to someone else. After all, the lender's main goal is to get money for the property. They are not in the business of collecting homes.
The foreclosure process is rather lengthy. You have multiple chances to stop it and fix your loan situation. Still, if you cannot do that, you may wonder when the right time is to file for bankruptcy and save your home.
File when your home goes up for sale
Much of the foreclosure process will focus on your lender trying to work with you to solve the problem. You will have the chance to discuss your options with the lender, usually through mediation. However, if you financially cannot save your home by bringing your mortgage up to date or reaching an agreement with your lender, your lender has the right to put your home up for sale. It is at that time you should file for bankruptcy.
Could your creditors take all your assets after your death?
Debts do not go away upon your death. You still have an obligation to pay them. However, some creditors may walk away empty-handed, and it could impact how much your heirs get from your estate if you have a lot of debt.
Maryland law has multiple rules regarding the distribution of assets and payment of debts after your death.
Creditor claims must be timely
Creditors only have six months from the date of your death or two months from the date when your personal representative sends them or publishes a notice to make a claim against your estate for any unpaid debt. If they miss the deadline, they lose their right to make any claims, and they have no legal right to collect any money for debts solely owed by you.
Distribution order of your assets
The law sets the order in which the personal representative will disburse your assets. The first payments must go to the register for administration expenses, funeral expenses and personal representative or attorney compensation.
Responsibilities of a chapter 13 trustee
A bankruptcy trustee plays a pivotal role in Chapter 13 bankruptcy cases. Appointed by the United States Trustee, the trustee manages the debtor's repayment plan, ensuring that the process follows federal regulations.
There are several responsibilities that the trustee carries throughout the bankruptcy process.
Reviewing and assessing the repayment plan
Upon filing for Chapter 13 bankruptcy, the debtor submits a proposed repayment plan that outlines their ability to repay their debts within three to five years. The trustee reviews the plan meticulously, verifying the accuracy of the financial information provided and assessing the feasibility of the proposed plan.
Holding the 341 meeting
The trustee organizes and conducts the meeting of creditors, also known as the 341 meeting. During this meeting, the trustee asks questions regarding the debtor's financial situation, assets and proposed repayment plan. Creditors may also attend the meeting to ask questions, voice concerns or object to the repayment plan. The trustee ensures that all parties follow proper procedures and remain respectful during the meeting.
3 common questions about bankruptcy and your credit report
Depending on if you have been making consistent payments on your debts, bankruptcy will likely significantly impact your credit score in the short term. However, if you are at the point where you are seriously contemplating filing for bankruptcy, you probably already have missed payments to your creditors.
If this is the scenario you are in, you probably wonder how bankruptcy will affect your credit going forward. Familiarizing yourself with the following answers may help you formulate a plan for your future finances.
1. Will I be able to get credit after filing for bankruptcy?
Yes, you likely will get plenty of offers in the mail for credit cards, car financing or other personal loans. However, these are typically not great financing offers as the annual fees, interest rates and other credit costs remain very high until you rebuild your credit.
2. How long does bankruptcy stay on a credit report?
A bankruptcy public record will still affect your credit scores as long as it appears on your credit report. A Chapter 13 bankruptcy stays on your credit report for seven years after filing. A Chapter 7 bankruptcy remains on your credit report for ten years from the filing date.
How much of your income should go to paying off your debt?
As you have probably noticed, virtually everything costs more now than just a couple of years ago. In fact, according to reporting from Time, inflation has kept the prices of everyday items at near record levels. If you do not have enough cash to pay for gas, utilities, groceries and clothing, you may have little choice but to use your credit cards.
Even if you try to stay on top of your finances, consumer debt can sneak up on you. Before you know it, you may not be able to pay even the minimum amounts due on your credit cards. So, how much of your income should you devote to paying off your consumer debt?
Your budget
Before knowing how much you can afford to pay credit card companies, you must come up with a budget. To do so, determine how much you spend each month on rent, utilities, food and other essential expenses. Then, see exactly how much you have left over.
Your ability to pay
Obviously, it usually makes sense to make at least the minimum payments to the issuers of your credit cards. If you only do that, though, it may take years for you to completely pay off your consumer debt. By budgeting, you may have enough remaining to make extra payments toward the principal debts you owe.
Can the wildcard exemption protect your car during bankruptcy?
If you are struggling to pay your bills, you certainly are not alone. In fact, according to Fox Business, half of American adults have had trouble paying credit card bills, medical debt, student loans or other outstanding balances during the past year.
Thankfully, Chapter 7 bankruptcy may give you a comparatively simple option for doing away with much of what you owe. If you take advantage of this type of bankruptcy, though, you must sell some of your assets to pay your creditors. This might mean getting rid of your car, truck or SUV.
Your need for reliable transportation
You obviously need access to reliable transportation for your commute to work and other places. Put differently, if you cannot drive, you may lose your job and incur even more debt. Regrettably, Maryland does not have a standalone automotive exemption in its bankruptcy laws. You may not be entirely out of luck, however.
Can you afford to help your adult children financially?
If you are a parent, you may have thought your financial obligation to your children would end when they became adults. Still, according to Prudential, roughly half of American adults say they are struggling financially. If your children are in this group, they may ask you for money or other financial support regularly.
While there is certainly nothing inherently wrong with helping your adult children from time to time, you do not want to overextend yourself. This is especially true if you have retired from your job, as you are likely living on a fixed income.
Many parents are sacrificing more nowadays
According to reporting from CNBC, 45% of parents say they have given money to their adult children during the last couple of years. Alarmingly, nearly 80% of these individuals had to make personal sacrifices to offer financial assistance to their kids. That is, most parents have had to scrimp to make their loans or gifts possible.
How long does filing a Chapter 13 bankruptcy take?
Bankruptcy is often a tool that may help you get out of a tricky situation. Your situation is unique, which means you need to understand which bankruptcy option fits your needs the most.
Chapter 13, as the United States Courts describes, is an option that offers you the opportunity to pay off your debts while still saving your home from foreclosure. Knowing what to expect over the coming months may help you organize your schedule and financial situation.
Mandatory credit counseling
Before your application for Chapter 13 bankruptcy, you must have a certificate of credit counseling. You earn these from courses approved by the Department of Justice U.S. Trustee Program. These courses advise you on how to manage your debt and help you draft a potential debt repayment plan.
Initial paperwork filing
With your certificate in hand, you need three schedules and a statement:
A few facts about bankruptcy and divorce
Most people know that divorce puts additional stress on a person's finances. This could lead to bankruptcy during an especially challenging time.
A few facts could help a person cope when faced with both marital and financial difficulties.
Handling both at the same time
Information from Experian emphasizes the difficulty of filing legal motions for divorce and bankruptcy simultaneously. Most court jurisdictions will place precedence over one action or the other, so for practical purposes, the two will not happen at the same time. Many courts will suspend the bankruptcy proceedings until the completion of the divorce.
This enables the courts to apportion the marital debts and assets to each party. Another practical consideration involves the sheer difficulty of undergoing two significant court cases during the same time period. This could lead to stress and impact relationships and work obligations.
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