Coming up with a plan to address your debts is stressful and confusing. At Cleveland Bankruptcy Attorneys, we’ve compiled a few of the most common questions related to filing for bankruptcy and proved some insights. However, if you’re having an issue not covered here or want more information, we encourage you to reach out for a free, no-obligation consultation with our Cleveland bankruptcy lawyers.
What is Bankruptcy?
Bankruptcy is a federally protected way for consumers and businesses to either eliminate their debt or pay back their creditors. Bankruptcy typically falls into two categories: liquidation or reorganization.
A Chapter 7 bankruptcy is a basic liquidation of an individual’s property to repay creditors and eliminate any remaining debts. Chapter 7 is the fastest and most common form of bankruptcy, and it typically takes four months from the day the case is filed until the day you get your discharge. You will attend one hearing called a meeting of creditors.
A bankruptcy trustee will review your petition for Chapter 7 bankruptcy and ask some questions at the meeting.
Under a Chapter 13 bankruptcy, you will be able to keep your property but have to prepare a payment plan to repay all or some of your debts within a three to five-year period. You will sort your debt into two categories: those that will be paid and those that will be discharged.
Many people can qualify for bankruptcy, but not everyone needs to file for it. Depending on your financial situation, you will probably qualify for either Chapter 7 or Chapter 13. A means test based on your income is one way to make that determination.
Do I need a lawyer, or can I file independently?
There is no requirement to have a lawyer if you file for bankruptcy, but the laws and procedures around the process can get confusing and overwhelming to tackle on your own. Mistakes or missed deadlines can also result in the end of your bankruptcy case and having to start over. It can be beneficial to have a lawyer who knows bankruptcy law and can help you make the best decisions for your situation.
How long does bankruptcy take?
Chapter 7 bankruptcy typically lasts approximately 4 months. Chapter 13 bankruptcy lasts between 3 to 5 years.
Can I discharge student loan debt through bankruptcy?
Student loan debt is typically not dischargeable unless you prove that repayment would impose an undue hardship on you and your dependents. If you can’t discharge your loans and worry about being able to afford the payments, look into the various repayment plans available through your loan servicer.
Bankruptcy exemptions permit you to be able to keep some of your property and assets safe from being liquidated. Exemptions will either protect the entire value of the asset or up to a certain monetary amount. If an asset qualifies for an exemption, it will remain untouched and unaffected by your bankruptcy. Read more about exemptions and what is exempt in Ohio here.
Are there alternatives to bankruptcy?
Yes. If you are facing a financial crisis, filing for bankruptcy is not the only solution. There are many alternatives to solve your debt problems, but these are always best reviewed with a bankruptcy attorney who will offer you the best advice based on your situation.
The following are ways you can attempt to resolve debts:
Contact your creditors or debt collectors
Once you have reached them via phone or letter, explain your financial situation and discuss payment plan options. Inquire whether any of your debts or payments can be reduced.
You may also be able to negotiate a lower interest rate or a principal, debt forgiveness, or a more extended period to make payments. Creditors are often willing to settle for partial payment because receiving some form of payment is better than writing off your debt as a total loss.
Use a credit counseling agency to manage your debt
Credit counseling services work with creditors and lenders on your behalf to resolve your debt problems. They can assist in developing debt management and repayment plans, debt education, or referring you to another agency.
If you decide to use a credit counseling agency, it’s essential to know that they may charge for their services. This can often be costly and unsuccessful in resolving your financial problems. Some are even scams. Most TV and radio commercials you hear are scams – they will claim to resolve your debt problems for basically nothing.
Use an attorney to help work out a debt settlement
You will likely pay a lot less than going through a debt settlement or credit counseling agency, which may not even be able to work out a settlement arrangement.
Fight disputed in debts in court
If you have been sued for a debt that you do not think you owe, you can pursue legal action in defense. Often, legal representation can be costly, so this is when you will want to decide if it is worth the investment.
The automatic stay immediately limits any impending legal action and most actions by creditors or collection agencies. An automatic stay is a shield that is put up around you once you have filed bankruptcy to stop your creditors from having any sort of contact with you.
An automatic stay takes effect immediately once you have filed for bankruptcy. Creditors must stop all communication with you, including phone calls, letters, emails, or text messages. Once you have filed for bankruptcy and your creditors receive notification of the bankruptcy, it is illegal for them to contact you in any way. Should a creditor not cease contacting you, they may face penalties and fines from the court.
What happens during a meeting of creditors?
Approximately 30-45 days after your bankruptcy case is filed, you will attend a Section 341 Meeting of Creditors. You will answer questions under oath by a bankruptcy trustee and potential creditors.
If you are absent from this meeting, your case will be postponed, and you and your attorney will need to explain why your case should not be dismissed. At the hearing, the Trustee may request additional documentation that you will need to provide quickly.
Am I going to lose everything if I file?
Regardless of the type of bankruptcy you file, you will not lose all your property. Each state has exemptions, which will enable you to keep certain property. If you file for chapter 7 bankruptcy, you will be able to keep all of your assets as long as there is no excess equity and you are current on your mortgage payments.
If you file for Chapter 13 bankruptcy, you will be able to keep most, if not all, of your property. Chapter 13 is intended for individuals who can afford basic monthly payments but cannot stay current with additional payments and bills. In a Chapter 13 bankruptcy, you can hold on to your property by reorganizing your debt and paying it off over the course of a three to five-year period.
Who will know if I file for bankruptcy?
When you file for bankruptcy, your case becomes public record. Your bankruptcy will also appear on your credit report if you complete a background check for an employer or possible landlord.
However, it is unlikely that your friends or family will find out about your bankruptcy unless you share it or they search for it in public records.
Absolutely! Filing for bankruptcy will have a severe effect on your credit score. After you file for bankruptcy, your credit score may drop at least 200 points. But it is not impossible to repair your score once your bankruptcy case has ended. Bankruptcy can also help by clearing up your debt-to-income ratio. You can rebuild your credit score and be back on track with your finances through responsible financial management.
To rebuild your credit, you must pay all your bills on time to show creditors that you’re financially responsible. Another way of rebuilding your credit is monitoring your credit report. Staying up-to-date and making sure your credit report is correct is crucial, as inaccuracies and errors can slow down the rebuilding process.
Chapter 7 bankruptcy will remain on your credit report for 10 years from the date you file. Chapter 13 bankruptcy will be on your credit report for seven years from the date you file. Learn more about bankruptcy and your credit here.
The amount of time it takes for a discharge to occur varies, depending on when and what chapter bankruptcy was filed. In a Chapter 7 bankruptcy case, a discharge is usually granted approximately four months from the initial date the petition is filed with the bankruptcy court. In a Chapter 13 bankruptcy case, a discharge is typically granted as soon as the debtor has completed all of the payments under the payment plan. This usually happens at least three to five years after the case is filed. Any unsecured debts that were not paid off in the repayment plan are cleared and included in the discharge. Read more about discharges here.
Questions about Bankruptcy Filing? Call Cleveland Bankruptcy Attorneys Today.
Contact Cleveland Bankruptcy Attorneys today to discuss your options.