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Is Chapter 13 better than Chapter 7?
The biggest difference between Chapter 7 and Chapter 13 bankruptcy is you repay debts in Chapter 13 through a payment plan. This fact may lead some people to believe that makes Chapter 13 a better option.
According to U.S. News and World Report, since both are still bankrupt, neither is better than the other in the eyes of creditors because they both show you had financial difficulties. However, for your situation, one may be better than the other in your eyes.
Chapter 7 may be better
Chapter 13 may also be more difficult when it comes to re-establishing your credit because you will not get your discharge until you complete the repayment plan. That could take three to five years. With Chapter 7, you will usually get your discharge within months of filing. So, you will not have an active bankruptcy as long as Chapter 7.
Chapter 7 also will wipe out your debts even if you cannot repay them. So, you begin again with a clean slate and do not have to pay anything more out of pocket. With Chapter 13, you only get rid of debt once you make some financial contribution out of pocket through your monthly payments.
Does medical debt affect credit score?
Even if you have a good health care plan, a trip to the emergency room may set you back hundreds or thousands of dollars. If you must stay in the hospital or undergo a surgical procedure, you may spend considerably more. When the medical bills arrive, you simply may not have the means to pay immediately.
While your credit score should be lower on your priority list than your health, you may wonder how unpaid medical debt may affect your personal creditworthiness. In this regard, there is some good news and some not-so-good news.
The good news
If you can stay on top of your medical bills, even considerable medical debt is not likely to affect your credit score. That is, medical debt usually matters only when it goes to collections. Therefore, if you are not yet behind on your payments, it may be advisable to negotiate a repayment plan with your health care providers.
The not-so-good news
There are a couple of ways unpaid medical debt can be catastrophic for credit scores. First, if you miss payments, your provider may pass your debt through to a collection agency. This is likely to trigger an immediate decline in your credit score. Additionally, your doctor or hospital may be unwilling to negotiate your bill or accept a payment plan.
What do you know about offers in compromise for tax debt?
You want to dig yourself out from under a mountain of tax debt, but maybe you do not know all your options. What if you could settle your debt for less than the full amount owed?
The IRS explains how an offer in compromise works. Paying your full tax debt does not need to bleed your finances dry.
Defining an offer in compromise
If you cannot pay all your tax debt, or if doing so would become a monetary hardship, the IRS could approve you for an offer in compromise. Before approving you, the revenue service considers your asset equity, ability to pay, expenses and income. You improve your chances of qualifying if your offer represents the maximum amount the IRS should expect to receive within a reasonable time frame.
Checking your eligibility
Before applying for an offer in compromise, file all necessary tax returns. If you have estimated payments, you must satisfy them to remain eligible. If you have an open bankruptcy proceeding, you cannot apply for an offer in compromise.
How does bankruptcy affect tax debt?
Under many circumstances, it is not possible to discharge tax debt during bankruptcy. For example, most chapter 7 filings require payment of tax debt first, making them a priority among other types of debt.
Despite these standards, it is sometimes possible to discharge tax debt via bankruptcy. In order to do so, the filer must meet certain relevant criteria. The following are a few of those criteria and why they matter.
The age of the tax return and debt
You can only include returns filed two years prior in bankruptcy cases. When it comes to the age of the debt, cases can only include debt three years old or older. If the return or debt occurred more recently, you cannot include it. Additionally, returns that were never filed are not eligible for discharge.
The age of the assessment
Assessment means that you filed a return and the IRS accepted that return. An assessment can also result from an audit conducted by the IRS. In either case, 240 days or more must have passed between the assessment and the filing.
How can you treat your credit card after bankruptcy?
Falling into debt often serves as one of the most difficult points of your life, and getting back out of it can take a lot of time and effort. Needless to say, once you get back out of it, you want to do everything in your power to keep from falling back.
Some areas of bankruptcy may have been out of your control, but others you have some measure of sway over. This includes your credit card, how you use it and the potential debt that can come from misuse.
Change how you look at your card
The Balance looks into how you can treat your credit card in the aftermath of bankruptcy. Credit cards often serve as a major point in bankruptcy cases, as they tend to end up misused and you may view them in the wrong light. Thus, the first thing you can do is change how you view yours.
Do not treat your credit card like a way of borrowing money you do not have. Instead, treat it like a debit card and only spend what you could feasibly pay back that same day. This keeps you from falling into the trap of buying over your means.
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.
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