January 26, 2024
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If you’re like most of us, you’ve heard about bankruptcy and maybe even known someone who had to file…perhaps even you. But how much do you know about the process? Hopefully, you know nothing. But if you are thinking about bankruptcy, whether it be Chapter 7 or Chapter 13, something has gotten you into this situation, and this is when you need The Debt Doctors.
Bankruptcy – what brings a person to this point? Understanding is the first step in making an informed decision.
Surely if you work hard, watch your spending, and live a careful life, it could never happen to you, right? But sometimes life happens, and the bad things – and sometimes bad choices – create a situation where you have nothing left. In many cases, financial distress is temporary and it’s easier to overcome with the right advice. Our goal is to help you tackle your financial issues immediately and work toward a healthy financial situation.
Why do people get into situations that use up all their assets and leave them with nothing but debt? The circumstances vary from person to person, but here are some main reasons.
The formal definition of bankruptcy is that it’s a legal proceeding that begins when you cannot pay your outstanding debts. The right to declare bankruptcy is so important that it’s actually in Article I, Section 8, Clause 4 of the U.S. Constitution. Since it’s governed by federal law, bankruptcy is pursued in federal court. You’ll need an attorney to help you with the process.
If you’re filing for bankruptcy, you’re a “debtor.” The people or businesses to whom you owe money are “creditors.” Depending on the type of bankruptcy you choose to file, you may:
Most individuals have access to two types of bankruptcy options: Chapter 7 and Chapter 13. Knowing which one to use is essential for your future. Note also that both Chapter 7 and Chapter 13 bankruptcy offer significant protection in the form of an automatic stay. When you file, the stay stops creditors from taking legal action and stops any current proceedings.
Filing Chapter 7 lets you wipe out most of your “unsecured” debt, which does not have collateral backing.
As a debtor, you have the right to retain any property legally considered exempt from the reach of creditors. You can opt to claim your exemptions either under Pennsylvania law or federal law.
Your attorney can help you decide whether you should use the federal or Pennsylvania list of exemptions.
In Pennsylvania, you can use either the federal or state exemptions. The federal exemptions allow you to keep certain amounts of equity in your home, car, and household goods up to a designated amount. Tools, books, and items needed for your job may also be kept, along with specific amounts of jewelry and property. You may also receive benefits such as Social Security, assistance, unemployment, and pensions. Under the state exemptions, you can keep anything designated as marital property.
When a couple files their taxes jointly, the federal exemptions they receive are doubled.
Chapter 13 bankruptcy is used by people who fail to qualify for Chapter 7 due to income, want to try to keep their home from foreclosure, restructure tax debts, and/or restructure student loans. The payment term is usually three to five years. The most important thing about filing Chapter 13 is that it can allow you to keep property, like your home, and restructure debts to make your payments more affordable. .
Yes, it will. A bankruptcy record is visible on your credit report for ten years. However; most people rebuild their credit within 2-4 years if they utilize credit wisely. Part of our service is providing you strategies to help you do that.
Filing for bankruptcy can be embarrassing, overwhelming, and can cause sleepless nights and stressful days. Call us today at The Debt Doctors. There’s no judgment here, just someone who understands your situation and can help guide you through financial distress so you can have a better financial future.
Considering filing for bankruptcy? You are most likely going to file a Chapter 7 or Chapter 13. But how do you know which bankruptcy option is best for you and your situation? The Debt Doctors are here to explain the major differences between Chapter 7 and Chapter 13 and help you decipher which case would be most appropriate.
There are several types of bankruptcy, but only two are common for individual debtors. Chapter 7, which is a liquidation process. And Chapter 13, which involves restructuring debt into a long-term plan
In a Chapter 7 bankruptcy, you essentially wipe out your debts and get a fresh start. Chapter 7 is a liquidation where the trustee collects all the debtor’s assets and sells any that are not exempt, (click here to see PA Exemptions.) The trustee sells the assets and pays the debtor any amount that is exempt. Then, the net proceeds of the liquidation are distributed amongst your creditors.
However, certain debts cannot be discharged in a Chapter 7 bankruptcy such as alimony, child support, fraudulent debts, certain taxes, etc. You can read more on PA’s Non-Dischargeable Debts here.
In many Chapter 7 cases, the debtor has a large amount of credit card debt, other unsecured bills, and very few assets. In the vast majority of these cases, Chapter 7 bankruptcy can eliminate these debts.
Under a Chapter 13 bankruptcy, the debtor proposes a 3-5 year repayment plan. This plan goes to the creditors that are offering to pay off all or part of the debts from the debtors future income. Chapter 13 can be used to:
As long as you stick to the terms of your repayment agreement, all your remaining dischargeable debt will be released at the end of the plan.
Several factors go into the amount that is to be repaid, like the debtor’s disposable income. This is usually determined as part of the Pennsylvania Means Test. In addition, the total amount paid to creditors in the Chapter 13 plan must also be as much as creditors would receive if the debtor filed a Chapter 7 bankruptcy instead.
To file a Chapter 13 bankruptcy, you must have “regular source of income” and some disposable income to apply towards your payment plan.
Chapter 13 bankruptcy is generally used by debtors who want to keep secured assets like a home or car. When they have more equity in those secured assets, they can protect them with PA’s bankruptcy exemptions.
Understanding the ins and outs of filing for bankruptcy can help you decide if it’s the right path for you. Chapter 13 bankruptcy is a reorganization and restructuring of debt. Whereas, Chapter 7 bankruptcy is a liquidation. If you are unsure which chapter is best for you and your situation, contact us for a free consultation. Making the right decision now can enable future financial success and eliminate sleepless nights.