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How are Chapter 7 and Chapter 13 bankruptcies different?
Many people across Maryland struggle to stay on top of their finances, so if you find yourself facing similar circumstances, you are not alone. After considering your options, you may decide that filing for bankruptcy might give you your strongest chance of digging yourself out of debt. Most consumer bankruptcies involve either Chapter 7 or Chapter 13 filings.
According to U.S. News and World Report, the two common types of consumer bankruptcies differ in several key ways.
The Chapter 7 bankruptcy
A Chapter 7 filing may suit your needs if you have a relatively low household income and no realistic way to otherwise get back on top of your finances. You have to take a means test to qualify for Chapter 7. If you pass the test, you move forward with a "liquidation" bankruptcy. This means you may, depending on circumstances, have to sell off some of your property or assets to pay back creditors.
How the bankruptcy means test determines Chapter 7 eligibility
For many Maryland consumers, filing for bankruptcy means a chance at a fresh start. Though not necessarily appropriate in all situations, filing for bankruptcy may help you get a better grip on your finances so that you are able to avoid falling into deep debt again in the future. If you decide to file for bankruptcy, you are likely to do so through either a Chapter 7 or a Chapter 13 filing. However, if you wish to file for Chapter 7, you first have to prove eligibility to do so.
According to NerdWallet, you must take and pass a means test to move forward with filing for Chapter 7. The means test has two parts. However, if you pass the first part with ease, you do not need to worry about the second part.
The first part of the means test
The first step in the bankruptcy means test has you compare your own household income from the last six months against the median household income in Maryland. If yours is the lower amount, you automatically pass the means test and qualify for Chapter 7. If you do not pass the means test in its first section, you may move on to the second step.
What does debt collector harassment look like?
Dealing with debt collectors is not the most fun thing. It becomes even more harrowing when up against a debt collector who refuses to abide by the Fair Debt Collection Practices Act (FDCPA).
The ways in which a debt collector may avoid abiding by the FDCPA can differ in many ways. What does harassment in specific tend to look like?
Overt debt collector harassment
The Consumer Financial Protection Bureau takes a look at debt collector harassment. This is an umbrella of actions banned by the aforementioned FDCPA, though of course, not every debt collector will abide by the act.
Harassing acts fall under an umbrella definition that generally speaks of anything that causes the target to feel anxious, unsafe, afraid or other such negative feelings due to actions taken or words spoken by the debt collector.
This can include more overt threats, such as directly threatening a family with eviction if they do not repay their debts or even threatening someone within the household with bodily harm.
What is an "automatic stay"?
Getting behind on your bills can be incredibly stressful. Concerns about keeping your home, your car and your way of life can keep you up at night.
Creditors who constantly attempt to collect on bills you have no way to pay do not help lower your stress. One of the benefits of filing for bankruptcy is that creditors cannot continue to harass you.
What is an automatic stay?
A stay is a court order that forbids creditors from taking any action to collect on debts while the stay is in force, including foreclosure, garnishments, lawsuits or any other collection activity. When you file for bankruptcy, the court enters a stay automatically as part of the filing process, hence "automatic stay".
How long can an automatic stay be in effect?
In the state of Maryland, an automatic stay can last anywhere from 30 days to five years. Generally speaking, the stay lifts when the bankruptcy process is complete.
3 tips for building credit after filing bankruptcy
If you struggle to stay on top of your bills every month and feel like you will never get out of debt, bankruptcy may be a helpful option. There are two types of consumer bankruptcy, which include Chapter 7 and Chapter 13, and filing may help you move forward financially.
The Federal Trade Commission states that filing bankruptcy could help stop repossessions, foreclosures, utility shut-offs, wage garnishment and other debt-related activities. Although bankruptcy is helpful for many, it can damage your credit score, which is why you will want to take steps to rebuild your credit after filing.
1. Keep an eye on your credit score
Check your credit score and review your credit report on a monthly basis. While your bankruptcy filing will stay on your credit report for several years, you should still negate any errors or issues on your reports to ensure an accurate reflection of your creditworthiness.
2. Use debt carefully
You may feel hesitant to use debt after you finalize the bankruptcy process but doing so carefully can help you rebuild your credit. Try using a secured credit card or ask someone to co-sign on a loan application.
How may I keep my car during bankruptcy in Maryland?
Maryland residents may ask the court to exempt their vehicles when filing for bankruptcy. Your car's value and the amount left on an auto loan may determine whether you could keep it. The type of bankruptcy you file may also affect your ability to protect your vehicle.
Section 11-504 of Maryland's Courts and Judicial Proceedings code allows residents to exempt personal property up to $5,000. If your car's equity does not exceed $5,000, bankruptcy may not affect it. You may find whether your vehicle's value falls within the exemption limit by subtracting your loan balance from your car's market value. If the dollar amount does not exceed $5,000, you may keep your car.
Keeping vehicles with loans in Chapter 7 bankruptcy
As noted by Experian.com, bankruptcy petitioners must show that they have not fallen behind on car payments. A delinquent auto loan may result in repossession, and bankruptcy may not protect it. If you could catch up on past-due payments, however, you may keep your vehicle.
What are the leading causes of bankruptcy?
Collection calls may at first cause a nuisance, but they may soon become a bigger issue. When debtors want to collect, they may take legal action against you. If this is where you find yourself, you may want to consider filing bankruptcy.
Unlike years ago, the legal act of declaring bankruptcy no longer carries a negative perception. While you may not want to consider it, if your debt situation is dire enough, it may serve as a viable option to help you get a fresh start. Your debt may have from one of these common scenarios many others face.
What does the court consider unsecured debt?
A common source of overwhelming debt comes from unsecured accounts. This means that a creditor gave you a line of credit without requiring collateral. If you have a credit card, you have an unsecured line of credit. Credit card debt is on the rise and a leading contributor to needing to declare bankruptcy as late fees mount and interest rates rise.
A look at what an automatic stay can and cannot do for you
When you file for bankruptcy, you trigger an "automatic stay," your protection against creditors and others who wish to collect money from you.
However, the automatic stay is not all-powerful. Here is a look at what it can and cannot do for you
Stops wage garnishment
An automatic stay will stop all wage garnishment proceedings. If you have multiple garnishments, you can begin taking home your entire salary once the automatic stay is in place.
Halts foreclosure
Perhaps you worry about the threat of foreclosure. Even if your financial institution has already begun the process, the automatic stay will put an immediate stop to it. Keep in mind that once the stay is lifted, the foreclosure process may resume. Consider filing Chapter 13 to get around this activity.
Delays disconnection of utilities
Is the utility company preparing to turn off your service because you are behind in your payments? The automatic stay can prevent this from happening for at least 20 days, allowing you time to pay your bill.
The 341 meeting is an early stop in your bankruptcy journey
Soon after you file for Chapter 7 or Chapter 13 bankruptcy, you will attend the 341 meeting.
You may feel a bit anxious, wondering what this is all about. Be assured that this meeting is a good first step on your journey to a better financial future.
Naming the meeting
The 341 meeting, or meeting of creditors, takes its name from Title 11, Section 341 of the United States Code. It is this section that requires debtors to meet with creditors. However, creditors usually decline to attend since they lose no standing in a bankruptcy case if they choose not to appear.
Meeting the trustee
For you, the primary benefit of attending this hearing is to meet the trustee from the Office of the United States Trustee who is in charge of administering your case. The trustee will ask questions that you must answer truthfully under penalty of lying under oath. The questions concerning your property, liabilities and current financial condition will help the trustee conduct his or her responsibilities efficiently.
Are there any downsides to zero-interest credit cards?
If you are like many Marylanders who have decent credit scores, you undoubtedly receive stacks of credit card applications in the mail every single month. Many of these may offer you attractive interest rates, such as 0% APR for a year or 0% APR on balance transfers.
Having high-interest credit cards can be demoralizing. After all, even when your pay more than your monthly minimum, your balances may seem never to decrease. According to reporting from NerdWallet, though, transferring these balances to a 0% APR card may make a great deal of financial sense.
Read the terms carefully
The news may not be entirely positive, as many zero-interest credit cards come with restrictions and drawbacks. Consequently, it is imperative to read the terms of your offer carefully. Because credit card companies have a legal obligation to disclose rate hikes to you, the offer should tell you exactly what to expect.
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