Individual Bankruptcy Law.
Individual bankruptcy allows you to petition the court to release you from liability over your debts. The judge and court trustees look into your assets and liabilities and decide whether to free you from legally repaying those debts or not.
Let’s look at what you need to know about Individual bankruptcy laws;
1. Types of Individual Bankruptcy Laws
The law provides two critical forms of personal bankruptcy; Chapter 13 and Chapter 7;
- Chapter 7 bankruptcy; is formulated for those who are genuinely unable to pay their bills. For you to qualify, your earnings must be less than the median income for a family of six in your state. A means test is administered to you by a court trustee if your income is above the median income of your state. For you to qualify, you must pass this test. The trustee looks at your income and expenses with a view of gauging whether you genuinely need the relief.
- Chapter 13 bankruptcy; is also known as the ‘wage earners bankruptcy.’ You must have a stable source of income, as well as, substantial unsecured debts, such as personal loans, credit cards, and medical bills and other secured debts for you to qualify. The unsecured debts should be less than $394,725 while the secured debts should be a maximum of $1,184,200 for you to be considered.
2. Do all your Debts Qualify for Bankruptcy?
The answer to this question is “No”. Not all of your debts will be wiped out once you successfully file for bankruptcy. The following debts cannot be discharged under individual bankruptcy laws:
- Child support debts
- Obligations arising from Alimony
- Debts owed to government agencies
- Student loans
- Income taxes
- Court penalties and fines
The debts covered under chapter 7 bankruptcy include personal loans, medical bills, credit card debts, obligations from contracts and leases, and lawsuit judgments.
The debts covered under chapter 13 bankruptcy include all the chapter 7 bankruptcy debts, as well as, divorce debts (with the exception of divorce support payments aka alimony or spousal support). It also takes out mortgages for retirement plan loans.
3. Qualification for Individual Bankruptcy
If you have more debts than money to pay for and you have no means of clearing the obligations shortly, then you are eligible for bankruptcy declaration. The average income for people filing bankruptcy was just $35,000, and their expenses were amounting to $30,000.
4. The Adverse Effects of Declaring Individual Bankruptcy
Once you successfully file for bankruptcy, you are given a second chance to start again. However, there are adverse effects that come with bankruptcy declaration:
- Your future ability to borrow money is significantly affected because your credit records are negatively listed. Bankruptcy records can remain on your credit report for up to 10 years.
- You might not manage to do a foreclosure on your home.
- It may lead to a deduction of money from any form of monetary compensation, including your salary. This is frequently referred to as wage garnishment. This deduction may continue until all debt is paid in full.
- You might also have to bear the societal stigma attached to bankruptcy. Some people view bankruptcy as a personal failure.
5. Appropriate Time to Declare for Bankruptcy
There is no specific time to file for individual bankruptcy. However, consider filing for bankruptcy if you find yourself in the following situations:
- If, according to your calculations, you’ll struggle for more than five years to repay your debts.
- If huge debts comprising of credit card debts, mortgage debts, student loans have ruined your financial standing entirely, and you don’t see any possibility of your situation changing anytime soon.
- If you have unsuccessfully gone through a debt settlement or debt management program with your creditors.
- If you have unsuccessfully explored other debt relief measures.
6. What can cause you to Declare Individual Bankruptcy?
There are several reasons that can force someone to seek debt relief. A lot of legal studies point out that, the leading reason for seeking bankruptcy is the loss of employment and health problems. You will agree that finding yourself in any or both of the two situations can put you in the lurch, quite literally when it comes to managing your debts. Other conditions that can force you to declare bankruptcy include the following:
- Lawsuits by your creditors for late payments.
- Your home is in danger of foreclosure.
- You only use credit to pay for goods and services.
- You are going through a divorce.
7. What Can Cause You to be Disqualified from Individual Bankruptcy?
At times you could be feeling a lot of pressure from your creditors yet when you finally decide to file for bankruptcy you get the terrible news that you don’t qualify for one. Here are several reasons that can lead to this:
- If you fail your means test, then you are disqualified. This means that you have an income that is too high as compared to your expenses. Alternatively, you could possibly be in possession of many valuable assets that can be used to offset your debts.
- If your debts are too small.
- If you can’t afford to pay the filing costs or attorney fees. It is estimated that filing bankruptcy costs between $1,500 and $4,000. This covers both the attorney and court filing fees.
8. The Steps in Successfully Filing for Individual Bankruptcy.
It may look like a big challenge to file for a bankruptcy case. Well, there is an established process that you must follow in order to file for bankruptcy successfully. Follow the following 11 crucial steps:
1. List down all your financial records. These include incomes, expenses, assets, debts. It will give your attorneys and you the factual picture of your financial standing.
2. Visit a reputable counselor, six months before you file. Bankruptcy can be harrowing. It can take away all your energy and render you an emotional mess. You need counseling to prepare you to stand through this looming storm.
3. Once you are through with the counseling sessions, you receive a certificate of completion from your provider. You need to deliver this certificate to the court alongside other crucial papers when filing for bankruptcy
4. The next step is to file a petition for bankruptcy. It is advisable to involve a lawyer when filing this request regardless of whether you are filing for chapter 13 or chapter 7. You will be wading through extensive legal jargon that can confuse you. There are so many forms to be filled and so many steps involved while filing. If you fail to adhere to the right procedure, you risk having your case rejected. You can get guidance from our experienced attorneys.
5. Once you have successfully filed the petition, your file is assigned to a court trustee. The trustee is mandated to arrange a meeting with your creditors. You are required to attend the meeting in person. The meeting will offer a chance for your creditors to ask all the information touching on your case.
6. Once the trustee has reviewed all the news on your case, the court determines whether you qualify for chapter 7 protection or not. If the courts deny your petition, you can still file for chapter 13 of bankruptcy.
7. The trustee will then decide on your nonexempt property. The decision is whether the property can be seized and sold to offset your debts. You can negotiate with the trustee to have some property remain. You can also trade the exempt property with the nonexempt.
8. The next step is dealing with secured debts. Secured debts are the collateralized debts. It means that the creditor has the right to take the collateral in case you fail to pay the debt as agreed. You can reclaim the property by paying off the debt in full or reaffirm the debt. Reaffirming the debts means you agree that you still owe it once the bankruptcy is over. Again, you should involve your attorney when dealing with secured debts
9. After filing, you are required by law to take a financial management course.
10. You will receive your discharge three to six months after filing your bankruptcy.
11. Your bankruptcy case will then be closed a few days after your release is granted. You will receive freedom from most of your creditors.
Finally, if you are considering an individual bankruptcy case, take the necessary step of involving an attorney. We are masters when it comes to bankruptcy cases. We guarantee a smooth process that will give you your desired results.