Filing for bankruptcy is a complicated, emotional process. It takes more work and time than most people realize, but it can also be the right solution for significant debt issues. Consult with a bankruptcy attorney or educate yourself on your options, you may find that filing for bankruptcy could help you out of a difficult financial bind. Most filers find that bankruptcy eases stress by stopping: What Happens After a Chapter 7 Bankruptcy?Those who pursue a Chapter 7 bankruptcy should be aware of some potential problems or concerns. Many forms of debt cannot be discharged under Chapter 7 bankruptcy, including: Potential applicants for Chapter 7 bankruptcy should be aware that even private student loans are rarely discharged without a special showing of undue hardship. This can be hard to prove but can happen if you become permanently disabled and cannot work. Solving Bankruptcy ProblemsFollowing a bankruptcy, you may need to correct any inaccurate reports from former creditors. To do this, you will need to engage in a process with the credit bureau. This can entail contacting former creditors for verification of the satisfaction of debts. Even when these issues are resolved, those who have completed a bankruptcy can still expect to: These complications are not the end of the world. They may require using a mortgage broker when seeking to purchase a house. Reasons Why People Go BankruptThe bankruptcy statistics in America are alarming. The past few decades have seen a dramatic rise in the number of people who are unable to pay off their debts, and Congress has recently addressed the issue with legislation that makes it harder to qualify for this status. Following is a list of the most common causes of bankruptcy in Utah today. 1. Medical Expenses 2. Job Loss 3. Poor or Excess Use of Credit 4. Divorce or Separation 5. Unexpected Expenses If you’re behind on your payment, in foreclosure, or have more equity than you can protect, you’ll have a better chance of keeping your home in Chapter 13 bankruptcy. Filers faced with those circumstances should learn more about choosing between Chapter 7 or Chapter 13 when keeping a home. Your Home and the Chapter 7 Bankruptcy TrusteeChapters 7 and 13 work very differently, so it’s important to understand what to expect—especially if you want to keep valuable property in Chapter 7. After filing for Chapter 7, your property will go into a bankruptcy estate held by the Chapter 7 bankruptcy trustee appointed to your case. However, you don’t lose everything because you can remove (exempt) property reasonably necessary to maintain a home and employment. The trustee will sell any remaining assets and distribute the sales proceeds to your creditors. Here’s the tricky part—if you make a mistake, it’s unlikely that the bankruptcy judge will allow you to dismiss the case, and you could lose the house. So you must follow the rules carefully. Are Your House Payments Current?You’ll likely lose your home if you’re behind on the mortgage payment when you file for Chapter 7. Although the automatic stay will temporarily stop a foreclosure, the best thing you can hope for is delaying the process for a few months. Chapter 7 bankruptcy doesn’t provide a way for you to catch up on the overdue payments. This presents a problem because a mortgage is a secured debt, and you can’t wipe out the lien in Chapter 7 bankruptcy. The lender can foreclose after the automatic stay lifts, and you’ll lose the house. The lender will either ask the court to lift the automatic stay to allow foreclosure proceedings to continue (which the court will likely grant if the trustee doesn’t plan to sell the home) or wait until the bankruptcy ends, proceed with foreclosure, and then sell the house at auction. Chapter 13 bankruptcy can help. If you’re behind and want to keep your home, the better option is to file a Chapter 13 case. Unlike a Chapter 7 bankruptcy, it has a provision that allows you to catch up on mortgage arrearages over the course of a three- to five-year repayment plan. Also, if you have more equity than you can protect with a homestead exemption (more below), you can pay your creditors the value of the nonexempt equity in the plan, as well. Can You Continue Making House Payments After Chapter 7 Bankruptcy?It’s also important to be sure you can afford to continue paying the mortgage payment after a Chapter 7 bankruptcy. Losing the house after your case might put you in a worse financial position. Why? If the lender couldn’t sell the home for the amount you owe, you’d be stuck with a deficiency balance depending on the laws of the state you live in. You’d have to wait eight years to file a second Chapter 7 bankruptcy, leaving the lender plenty of time to collect a deficiency balance using collection methods such as garnishing your wages or levying on a bank account. How Much Equity Is in Your Home?If your mortgage payment is up-to-date, your next step will be determining how much equity exists. You’ll start by valuing your home. Then you’ll subtract any outstanding mortgage balance from the home value. The equity would be the amount you’d have in your pocket if you were to sell the house. If you don’t have any equity, you’re in good shape; trustees don’t sell houses without equity. Otherwise, you’ll need to be able to protect your equity with a bankruptcy exemption to avoid losing the home in Chapter 7 bankruptcy. Can You Protect Your Home Equity With Bankruptcy Exemptions?State exemption statutes list the property its residents can protect in bankruptcy. Some states allow residents to choose between either the state exemption list or the federal bankruptcy exemption scheme. Either way, almost all states allow residents to protect some home equity with a homestead exemption. You might be able to exempt even more with a wildcard exemption. If your exemptions adequately cover your equity, the trustee won’t sell your home in a Chapter 7 bankruptcy. However, if your exemptions protect only a portion of it, the trustee will sell the house, pay off the mortgage, give you the amount you’re entitled to exempt, and use the remainder of the sales proceeds to pay creditors. Keep in mind that the trustee will take into account the costs to sell the home. If, after deducting sales costs, the amount remaining isn’t enough to make a meaningful payment to creditors, the trustee will abandon the property (and you’ll get to keep it). Indicators of When to File BankruptcyWhile there is no minimum debt to file bankruptcy, the amount of debt is certainly a vital thing to consider when filing. However, there are other indicators or factors that dictate on when you should file for bankruptcy and these include: Free Initial Consultation with LawyerIt’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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