Debtors don’t need a certain amount of debt to be eligible for bankruptcy relief. In most cases, whether bankruptcy is the right choice for you will depend on your ability to repay your debts outside of bankruptcy, whether your creditors are willing to work with you, and whether you have the type of debt discharged (eliminated) in bankruptcy. If you don’t have much debt but want to file for bankruptcy, you’re free to do so. However, a bankruptcy court might find your filing concerning. Here’s why: • Judgment-proof debtor status: Filers with minimal debt are often judgment proof. They don’t have income or property that a creditor can attach or collect. If you don’t think your situation will improve, there won’t be much reason to file. • Negative credit report impact: Filing for bankruptcy will impact a debtor’s credit report for seven to ten years, so it’s essential to weigh the benefit of discharging minimal debt against the detriment of long term credit damage. • Waiting period for additional discharge: You’re entitled to receive a bankruptcy discharge only so often, so it might be a good idea to save your bankruptcy discharge. If you find yourself facing thousands of dollars in medical debt down the road, you’ll likely wish you would have waited to file. Before making a hasty decision to file for bankruptcy, consider whether you can afford to repay your debts outside of bankruptcy. If you have sufficient income, you might be able to pay off your debts without resorting to bankruptcy. A credit counseling agency can help you determine whether you might be able to pay off your debts through a debt management program. But don’t go to just any credit counseling agency; a shady organization might charge you for questionable services. Instead, try an agency approved by the U.S. Trustee. You can find a list by going to the U.S. Trustee website and clicking on “Credit Counseling and Debtor Education.” • settle your debts for less than you owe You’ll want to try to settle debt with all creditors before choosing this option. It won’t make sense to pay some creditors only to end up filing for bankruptcy later. When deciding whether settling is the best option, be sure to take into account the federal income tax assessed on the forgiven debt, too. Bankruptcy might not eliminate all of your debt. Certain debts, known as non-dischargeable debts, are too essential to be discharged in bankruptcy, and if most of your debts fall into these categories, it might not be in your best interest to file: • domestic support obligations such as alimony and child support More Reasons to Consider Filing for Chapter 13 Bankruptcy With Ascent Law LLCWhether filing for bankruptcy relief is in your best interest will depend on the circumstances above, but some situations can tip the balance in favor of bankruptcy. Be sure to act quickly if a creditor is: Which Debts are cancelled in Chapter 13 Bankruptcy?Chapter 13 bankruptcy allows you to catch up on missed mortgage or car loan payments and restructure your debts through a repayment plan. When you complete your plan, you will receive a Chapter 13 discharge that eliminates most of your remaining debts. Read on to learn more about which debts can be discharged in Chapter 13 bankruptcy. Most Non-priority Unsecured DebtsUnlike priority claims—debts that get paid before other obligations—most non-priority unsecured debts receive no special treatment in bankruptcy. Unless the creditor can prove that you used fraud or false pretenses to obtain the debt, most types of non-priority unsecured obligations are dischargeable in Chapter 13 bankruptcy. The most common types of non-priority unsecured debts that you can discharge in Chapter 13 bankruptcy include: Secured Debts That Are Crammed Down or StrippedIn general, a bankruptcy discharge doesn’t eliminate liens from your property. If you have a mortgage or car loan, your lender has a security interest in your property. If you stop making your payments, the lender can foreclose on your home or repossess your car despite your discharge. Chapter 13 can help you save your house, however. If you satisfy certain conditions, you might be able to remove a wholly unsecured junior lien (such as a second mortgage) through lien stripping or reduce the outstanding balance of other secured debts (such as a car loan) with a Chapter 13 cram down. If you strip a junior lien from your house, it will be classified as a non-priority unsecured debt in your bankruptcy and eliminated when you receive your discharge. When you cram down a car loan or other secured debt, the loan is split into secured and unsecured portions. You must pay off the secured portion through your repayment plan. But the unsecured part is wiped out when you complete your plan and obtain a discharge. A Chapter 13 bankruptcy discharge allows you to eliminate certain debts that are not dischargeable in Chapter 7 bankruptcy. The following are some of the most common debts you can wipe out in Chapter 13 bankruptcy but not in Chapter 7: Debts Chapter 13 Doesn’t CancelYou must pay off certain obligations in full through your repayment plan regardless of your income and assets. Priority DebtsCertain obligations (called priority debts) receive special treatment in bankruptcy. Priority debts can’t be discharged (eliminated) by filing for bankruptcy. If you have priority obligations, you must pay them off in full through your Chapter 13 repayment plan. In most cases, Chapter 13 bankruptcy provides debtors a convenient and affordable way to pay off their priority debts over a three- to five-year period. But if you have a significant amount of priority debts, your monthly plan payment must be large enough to pay them off within five years. The most common examples of priority debts include certain tax debts and domestic support obligations such as alimony or child support. Learn about priority, secured, and unsecured debt in bankruptcy. Mortgage ArrearsIf you are behind on your mortgage payments and want to keep your house, you must pay off your mortgage arrears through your repayment plan. It’s one of the most common debts paid through a repayment plan because many debtors file for Chapter 13 bankruptcy to catch up on missed mortgage payments and save their homes. But keep in mind that you must continue to make your ongoing mortgage payments to your lender while catching up on your arrears through your plan. If you don’t plan on keeping your house, you don’t have to include your mortgage arrears in your plan. You can surrender the home to the lender, instead. Also, if you have a second mortgage or another junior lien on your house that you plan to eliminate through lien stripping you don’t have to pay off the arrears on that loan. Car Loans and Other Secured DebtsYou can always surrender your car and wipe out the loan. But if you want to keep the vehicle, you’ll have to pay for it. Whether you must pay off your car loan or other secured debts through your Chapter 13 plan as opposed to outside of the plan will depend on the rules in your jurisdiction. If you want to keep your car, some bankruptcy courts will allow you to continue making payments directly to your lender outside of bankruptcy. Others might require you to pay off your car loan through your repayment plan. If you are behind on your car loan payments or want to reduce your loan balance through a cram down, you must include your car loan in your repayment plan. Learn about Chapter 13 and the 910-day rule on car loans. Administrative ClaimsAdministrative claims get paid out of your payments over the life of your plan. For instance, the Chapter 13 trustee receives a portion of your plan payment (up to 10%) as compensation for administering your case and distributing payments to your creditors. Also, if you hired an attorney, chances are you agreed to pay some of the attorneys’ fees upfront and the remainder through your repayment plan. Advantages and Disadvantages of Chapter 13 BankruptcyDeciding whether to declare bankruptcy is very difficult and should never be taken lightly. It affects your future credit, your reputation, and your self-image. But it can also improve your short-term quality of life considerably, as the calls and letters stop. In addition to deciding whether to file, you’ll also want to consider which type of bankruptcy is right for you (typically Chapter 7, Chapter 11, or Chapter 13). Advantages of Chapter 13 With Ascent Law LLC• While it generally takes longer for you to pay off your debts, you’ll have more time to make your payments and Chapter 13 trustees may be flexible on the terms of your payments. You may be able to stretch out your debt payments, reduce the amounts of your payments, or give up an item of your property that you’re making payments on. Declaring bankruptcy now can get you started sooner on rebuilding your credit.Although you can only file under Chapter 7 once every six years, you can always get a Chapter 13 plan if there’s another disaster before you’re entitled to file for Chapter 7. Disadvantages of Filing For A Chapter 13 Bankruptcy• It can take up to five years for you to repay your debts under a Chapter 13 plan You can’t file for Chapter 13 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because: You may still be obligated to pay some of your debts, such as a mortgage lien, even after bankruptcy proceedings are completed. Once you’ve weighed the advantages and disadvantages of Chapter 13 bankruptcy, in addition to information about Chapter 7 bankruptcy, you’ll be better equipped to make a decision. But time is of the essence and you may need to consult with an expert before you decide. Get started today and speak with an experienced bankruptcy attorney near you. Chapter 13 Bankruptcy LawyerWhen you need to file for chapter 13 bankruptcy in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
Ascent Law LLC
8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506
Ascent Law LLC
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