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How may a sole proprietor file for personal bankruptcy?
Maryland small business owners operating as sole proprietorships may file for personal bankruptcy. If your business faces overwhelming financial hardships, you may file a petition for a Chapter 7 bankruptcy, as noted by Business.com.
If you applied for credit cards or consumer loans to fund your startup, you may have personal liability for your business debts. Creditors may file a judgment for unpaid balances against you directly if your business did not produce the income you anticipated.
When may a business owner file for Chapter 7?
Because a Chapter 7 bankruptcy may affect a filer's credit for up to 10 years, many business owners attempt to resolve their debts on their own. After contacting your creditors and explaining your circumstances, some may agree to work out a payment arrangement so that you could catch up.
If you own your home, you may refinance a mortgage or request forbearance, as described by the Consumer Finance Protection Bureau. If these options do not prove fruitful, you may consider filing for Chapter 7 bankruptcy.
Why is 30% so important to your credit score?
If you want to purchase a new home, car or any other expensive item, you have a couple of options: You can either pay cash or secure a loan. Still, most Americans do not have even three months of their salaries in savings.
When you apply for a loan, the financial institution is likely to look at your credit score. While most credit scores fluctuate frequently, paying close attention to yours may help you gauge your borrowing ability. When it comes to your credit score, 30% is important for two reasons.
Your credit utilization ratio
Most credit bureaus use credit utilization ratios when calculating credit scores. In fact, you can expect your credit utilization ratio to account for roughly 30% of your credit score.
Your credit utilization ratio is simply the amount of credit you are currently using relative to how much you have available. For example, if you have $1,000 in available credit and are using $500, your credit utilization ratio is 50%.
How could bankruptcy affect my outstanding tax debts?
Bankruptcy rarely discharges an individual's unpaid tax obligations. If you can prove an unusual financial hardship, however, the court may consider discharging certain tax debts.
As noted by Credit Karma, taxes more than three years old could have a chance of ending up discharged in limited situations. A bankruptcy trustee may review and consider those tax debts more than three years past due as of the most recent April 15 payment date.
When might the U.S. bankruptcy code discharge tax debts?
The trustee assigned to your bankruptcy case might recommend amnesty for some tax debts. To qualify, the debt must reflect amounts owed on tax returns filed at least two years before your bankruptcy. Late filings, a failure to file or audits could lengthen the time until tax debts become eligible for discharge.
Overall, the court will generally not consider pardoning tax debts associated with any years you did not file an income tax return. You may order receipts of your IRS account to provide documentation of your latest filings and taxes paid.
Medical debt the most common reason for bankruptcy
There is a stigma about filing for bankruptcy that may prevent some people from seeking the relief they need. There is a persistent perception that people bring bankruptcy on themselves by living beyond their means.
This is much less common than many people assume. According to CNBC, excess spending is only a factor in 44.4% of all bankruptcy filings. The most commonly cited reason for a bankruptcy filing, at 66.5%, is medical expenses. Because more than one factor may have contributed to bankruptcy, the percentages add up to more than 100%.
Why do medical expenses result in bankruptcy filings?
Even people who have health insurance may be susceptible to bankruptcy due to medical expenses. The reason is that most insurance policies do not provide sufficient coverage for all of the expenses related to a serious illness or injury. The Affordable Care Act made insurance more accessible to people who were not otherwise able to afford it, but it did not raise coverage limits. Nevertheless, even insurance policies that people receive from their employers do not provide sufficient coverage in most cases. Patients and their families are then responsible for paying the remaining bills out of pocket.
What does your credit report look like after bankruptcy?
After discharge of your Chapter 7 bankruptcy, you are no longer responsible for paying off those debts. However, a record of the bankruptcy and your closed accounts still remain.
Because there is still a record, bankruptcy continues to affect your credit score. Nevertheless, following discharge, an automatic update to the record reflects your current status.
How long do discharged accounts stay on your record?
According to Experian, it depends on whether the accounts included in the bankruptcy were delinquent or not. If not, the accounts remain on your record for seven years, starting from your bankruptcy filing date. Any accounts that were delinquent at the time of filing remain on your record for seven years starting from the date of delinquency, not the date of filing.
What if your bankruptcy information is inaccurate?
Updates to your record should occur right away after filing. Included accounts should show a zero balance on the report. However, because mistakes and oversights do happen, you should perform a review of your credit report a month or two after your discharge to make sure it is accurate. If there have not been updated to your status or there are other issues, you can contact your lender for the incorrect account and ask that they update it. You can also contact the credit bureau with corrections.
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.
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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
