Filing bankruptcy can give you relief from all or part of your debt. There are two major types of personal bankruptcy – Chapter 7 and Chapter 13. Chapter 7 bankruptcy allows you to discharge certain debts and get a fresh start. Chapter 13 bankruptcy, on the other hand, restructures your debt with a three- to five-year repayment plan.
Chapter 7 bankruptcy has income restrictions. To file Chapter 7 bankruptcy, you must pass a “means test” to prove your income is less than your state’s median income. If your income is greater than that amount, you won’t be able to file Chapter 7 bankruptcy. Instead, you’ll have to file for Chapter 13 bankruptcy if you want relief from your debt.
After you’ve filed once, you can’t re-file for a few years. Generally, you can’t file for Chapter 7 bankruptcy for eight years after a previous Chapter 7 discharge or six years after filing Chapter 13 bankruptcy. Similarly, you can’t file for Chapter 13 bankruptcy for four years after a previous Chapter 7 discharge or two years after a previous Chapter 13 filing.
You may be able to save your home from foreclosure. Through Chapter 13 bankruptcy, you can stop the foreclosure proceedings on your home by including your mortgage in your bankruptcy petition. You can even work out a repayment plan to pay back your delinquent payments.
Bankruptcy stays on your credit report for up to 10 years. Bankruptcy is listed in the Public Records section of your credit report. Chapter 13 bankruptcy stays on your credit report for 7 years from the filing date. Chapter 7 bankruptcy stays for 10 years from the filing date. Any account you included in your bankruptcy will be reported for 7 years from the date the bankruptcy was filed.
Bankruptcy follows you for life – loan applications ask if you’ve ever filed bankruptcy. Though your credit report won’t contain a trace of your bankruptcy filing after 7-10 years, the bankruptcy can still follow you around for life. Loan applications ask if you’ve ever filed bankruptcy and you’re required to be honest. You could be prosecuted for file if you mislead a lender into thinking you didn’t file bankruptcy when you really did.
Bankruptcy doesn’t remove liens from secured property. Though you can be relieved of the debt attached to secured property, the lien will still remain and the lien holder retains the right to repossess the property. Filing Chapter 13 bankruptcy can help you keep secured property. If you file Chapter 7 bankruptcy, you won’t necessarily lose secured property, if court determines the equity in the property can’t be used to pay back your creditors and you continue making timely payments on the loan.
Credit counseling is required. You have to receive credit counseling from an approved non-profit credit counseling agency 180 days before filing bankruptcy. You can get a list of approved agencies from the Bankruptcy Clerk’s office. Your bankruptcy attorney should also be able to give you this information.
Bankruptcy doesn’t relieve all your debt responsibility. Here are some debts that can’t be discharged in bankruptcy: debts that aren’t included in your petition, child support, alimony, fines, some taxes, debt incurred through fraud, and most student loans.
Co-signers may have to pay for loans they co-signed, even if they are discharged in your bankruptcy. Filing Chapter 13 bankruptcy may provide some relief for the co-signer.
It’s important to have the facts about bankruptcy before you file. Though you can legally file bankruptcy without an attorney, it’s in your best interest to seek legal counsel through a bankruptcy attorney.