Frequently Asked Questions About Bankruptcy and your Debts
Which debts are discharged by Bankruptcy?
The most common debts discharged by bankruptcy are unsecured debts, such as:
Credit card debts;
Collection accounts; and
Personal loans not secured by any property.
Which debts are not discharged in Bankruptcy?
Child support and alimony; and other debts related to divorce are very often not able no to be discharged due to court orders.
Taxes that were due less than 3 years before you filed for bankruptcy; any tax debts related to fraud or withholding information cannot be discharged.
Debts that arise due to criminal activity cannot be discharged.
Personal injury debts that arose from DUI case cannot be discharged.
Debts that are not listed in your bankruptcy papers may not be discharged in most situations.
HOA fees and similar type of fees accrued after filing Chapter 7 cannot be discharged in a Chapter 7 bankruptcy.
Student loans are not dischargeable, outside of extremely unique situations.
Frequently Asked Questions About Chapter 7 Bankruptcy
What is Chapter 7?
Is a process that when completed will discharge (eliminate) all your debts that eligible for discharge. It is the most common type of bankruptcy relief. You are telling the Court that you are unable to pay your debts and need assistance from the Court. Most student loans are not dischargeable and some tax debts might not be as well. You also cannot discharge alimony and child support.
What are the most common reasons for filing Chapter 7?
Some of the most common reasons for filing Chapter 7 include: loss of income, unemployment, medical debt, divorce, foreclosure, and issued with spending.
Who can qualify for Chapter 7?
The majority of people who qualify for Chapter 7 are debtors whose household income is at or below the median income lever of their state. Another way to qualify is if more than half of your debt is considered business debt.
What happens after I file for Chapter 7 Bankruptcy?
An automatic stay issues, which is a court order forbidding your creditors form contacting you. This means the collection of calls and letters will immediately cease. This relief come with a pitfall, you´ll need to set up your own reminder system for each debt you want to continue timely paying.
How long does a Chapter 7 Bankruptcy take?
The Chapter 7 process normally takes 3 to 4 months to be completed. If you are required to make payments to the court, the process can be significantly longer, but your discharge will be entered at the normal time.
Frequently Asked Questions About Chapter 13 Bankruptcy
What is a Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a plan that allows the debtor to reorganize his or her debt. Debtors with regular incomes can develop a plan that pays all or a portion of their debts back to the creditors in a defined time frame, which normally is anywhere from 3 to 5 years.
What are the most common reasons for choosing Chapter 13 Bankruptcy?
The most common reasons for filing Chapter 13 is that they have too much debt and make too much money to file a Chapter 7. Chapter 7 has income requirement; there are no such requirements in a Chapter 13 Bankruptcy. Another common reason is to prevent foreclosure and save your home. Lastly, many debtors file Chapter 13 to be able to keep assets they can´t fully protect (assets that are not exempt and could be liquidated to pay creditors) if they filed a Chapter 7.
Who qualifies to file for Chapter 13?
Any person can file a Chapter 13 as long as he or she has a source of income to fund a repayment plan and debts that are less than a specified amount which is adjusted periodically for inflation.
What happens after I file for Bankruptcy?
Upon filling the Chapter 13 petition, your creditors are not allowed to collect from you unless authorized in the bankruptcy payment plan or if they receive permission from the bankruptcy court.
How long does a Chapter 7 Bankruptcy take?
The Chapter 13 process is normally takes 3 to 5 years.
Frequently Asked Questions About Stopping Creditor Harassment
How does a Bankruptcy stop my creditors from harassing me?
Filing a bankruptcy is the best way to stop creditor harassment. As soon as your case is filed, creditors are not allowed to contact you for the duration of the bankruptcy unless they receive permission from the court. If you are in the process of filing a bankruptcy and have an attorney, then you can tell any creditors who are contacting you that you are going to file and give them your attorney´s information so they can verify that you are indeed going to file bankruptcy soon.
How will my creditors know that I have filed Bankruptcy?
Your creditors will know that you filed bankruptcy because you are required to list all creditors, along with their contact information, on your bankruptcy petition. There is a schedule in the petition specifically for listing creditors.
Can my creditors continue to contact me after I file for Bankruptcy?
It depends on the situation. Some secured creditors, for debts related to home and vehicle loans, will want to know if you intended to continue paying on your loan or if you are going to surrender the collateral instead. The majority of creditors with unsecured loans, such as credit card debt and medical bills, are not allowed to contact you again regarding that specific debt once you file bankruptcy.
How long after I file Bankruptcy will my creditors stop calling me?
Your creditors should stop contacting you almost immediately upon filing. Most of them will receive notice electronically, so a 24 to 48 hour window should be the most given to creditors to update their records and cease the phone calls.
Frequently Asked Questions About Short and Long-Term Consequence of Bankruptcy
If I file for Bankruptcy, will other people, like my employer, landlord, friend and neighbors find out?
Probably not, unless you tell them or they are listed in your bankruptcy papers as creditors. Bankruptcy filings are public records. Anybody who wants to investigate you will be able to find the records by making a trip to the courthouse or looking them up on the court´s website. But most people will have no reason to do so.
Can I lose my job if I file Bankruptcy?
It is not common to lose your job due to filing bankruptcy. Most employers will probably not even be aware of the filing. As general rule, both private and government employers are prohibited by law from discriminating against a person who files for bankruptcy. However, some jobs require a certain security clearance.
Can my landlord evict me if I file for Bankruptcy?
Your landlord cannot evict you just because you have filed for bankruptcy. Landlords, like employers, are prohibited by law from discriminating against tenants who file bankruptcy. If you have a lease, your obligations under it will be eliminated by your bankruptcy and your tenancy will become month a month.
What steps can I take to repair my credit after Bankruptcy?
The best step you can take post-bankruptcy is to manage your finances better going forward. One of the most important aspects of your fresh start is repairing your credit rating. Every situation is different and some situations make it easier for a credit rating to be repaired.
Here are some bankruptcy facts you should know before making that first call:
1. There’s More than One Type of Bankruptcy
Before filing for bankruptcy, keep in mind that there is more than one type of bankruptcy. Each type has certain restrictions and differing outcomes. The two most common bankruptcy filings for individuals are:
Chapter 7 Bankruptcy – Known as “liquidation” or “straight bankruptcy,” filing Chapter 7 bankruptcy generally allows debtors to discharge the majority of their debts and wipe the slate clean. Chapter 7 also requires the debtor to sell or liquidate many of their assets to pay back the debts.
Chapter 13 Bankruptcy – This type of bankruptcy allows individuals to reorganize their debt and make payments to their creditors over an extended period of time. The process generally lasts three to five years. The debtor’s assets are not liquidated, and any additional debt owed after the required payment period is typically discharged.
2. Not Everything Is Discharged
Even if you file for Chapter 7 bankruptcy, not everything is forgiven. There are a number of debts that usually can’t be discharged in bankruptcy. Some of these include most student loans, real estate liens (on things like your mortgage debt), alimony, child support, and most taxes. Furthermore, creditors can object to the discharge of the debt they are owed. If they win, you’ll still owe the money.
3. Your Income Matters
When you file for bankruptcy, the amount of money you make matters. Although anybody can file for bankruptcy, your income may disqualify you from filing for certain types of bankruptcy. For instance, you may make too much money to file for Chapter 7, meaning you’ll be required to file for Chapter 13 instead. If you do file for Chapter 13, the amount you make has a big impact on the way your debt is restructured.
4. It’s Not Free
Filing for bankruptcy means you’ll need to hire a lawyer. In most cases, your attorney fees are not free and can’t be added to your bankruptcy filing. Additionally, you may be required to pay for court costs. Also note that fees for Chapter 13 are generally higher because the process takes more time.
5. Bankruptcy Destroys Your Credit
Filing for bankruptcy is like dropping a nuclear bomb on your credit score. Your payment history determines 35% of your score, and a bankruptcy is a giant blot against that. It’s also a decision that has long lasting effects on your ability to secure a loan and utilize credit.
A bankruptcy stays on your credit report for up to 10 years, so this isn’t a decision to be taken lightly. During that time, buying a house, getting a credit card, or even landing certain jobs could be difficult. Additionally, the filing becomes public record. That means anybody who wants to can get up in your business.
6. It Doesn’t Cure the Root Problems
Filing for bankruptcy may help you discharge or restructure your debt, but it doesn’t cure the problems that got you there in the first place. Yes, bankruptcy may be a good option to help you get back to even. However, if you’ve run up mountains of debt due to poor financial decisions or an addiction to spending, those same impulses will still be around after the debt is gone.
When we were considering bankruptcy, it was 100% due to poor financial decisions and a spending addiction. But I overcame these issues. If you can relate in any way, then you might want to check out my brand new book, The Recovering Spender. It's the financial book that you will FINALLY be able to relate to.
Filing for bankruptcy can provide you with some much needed relief, but the real work is up to you. The only way to heal is to attack the root cause of your bankruptcy and change your behaviors. Learning to use a budget, tracking your spending, and avoiding debt are just a few things that can lead you toward financial health.
7. You Have Other Options
Of course, there are other options besides bankruptcy. You can:
Renegotiate Your Debts – Negotiate with creditors to adjust the terms of your loan, or make an offer to get your debt forgiven. Be sure to get any agreements in writing. It’s not easy, but usually creditors would rather get some money rather than nothing.
Create a Debt Payoff Plan – Eliminate your debts quickly by using the debt snowball method. First, limit your spending to essentials only. Then, use all of your available income to make extra payments toward your smallest debt. Continue making minimum payments on the rest. Once the smallest debt is eliminated, move on to your next smallest debt. Repeat the process until all of your debts are paid off. We talk all about this in our online finance course called The Financial Renovation – consider joining our community!
Consider Consolidation – If you’ve still got decent credit, you might consider consolidating your high-interest debt into a loan with a smaller interest rate or longer payment term. Use a company like SoFi to consolidate, which I highly recommend. However, doing this can be dangerous if you don’t change your behavior! Use the breathing room to pay off your debt quickly, not as a way to delay repayment or run up more debt.
Five Facts to Know About Probate and Estate Planning
You might need more than one probate.
Generally, probate will need to take place in the state and county where the deceased person owned property. However, if he or she had property in multiple estates, such as a summer home, for instance, a separate probate will need to be filed in every state in which the person has assets to complete the process of transferring property to beneficiaries.
Probate is avoidable.
In some cases, you might be able to stay out of probate court altogether. Some estates are small enough that it is not deemed necessary to register for probate. States have varying guidelines, so always check with a licensed probate attorney. Always examine your legal options carefully before beginning the probate process. For example, you can place you assets in a living trust to avoid the probate process.
Living people can still have probate.
In some rare cases, probate is necessary while the person in question is still alive. In cases of incapacitation, for example, probate goes into effect even if the person is still living. If a person does not have a Health Care Proxy in place, often a family member will have to petition the court for approval. This is why it makes sense to draw up a living will with the help of a Queens probate lawyer. That way, your wishes will be made clear to your relatives and friends.
Not all property goes through probate.
Rules about what must be itemized when undergoing probate can vary, so make sure you check with a professional. Real estate with a transfer-on-death deed set up generally does not have to be involved in probate. Joint bank accounts also are usually not subject to probate.
Probate takes time.
Although you can often begin the probate process as soon as a week after a person passes away, it can take up to several months for probate to be approved by the court. That means you’ll be responsible for any mortgage payments or other debts in the meantime, as well as court and lawyer fees. For this reason, may people choose to avoid probate by placing property in trust for family members.
When is Probate Required? Five Reasons To Go To Probate Court
There really are only five reasons why you'd have to go to probate court to either make your claim on the deceased's assets or to prove that you are a legal beneficiary. If any one of the following applies to you or to the deceased, then you might want to consult a probate attorney.
1. Probate court is necessary if the will is deemed invalid for one of these reasons:
Improper Execution – it wasn't written clearly or it was not a legal will.
Mental Incompetence – the deceased was not mentally competent when he or she made up the will so their decisions are questioned.
Undue Influence – the deceased was under duress when he or she wrote up the will.
2. Probate is required if the deceased didn't have a Last Will and Testament. If there is no will, then there has to be a legal and equitable probate court process for distributing the deceased assets and for transferring the title of probate property. The only way to do this is with probate.
3. Probate is required if the assets were owned solely by the deceased. If there were no other owners or designates of the property or asset, then in most cases the property will have to be probated to get it out of the deceased's name and into the beneficiary's name.
4. Probate is required if the assets were owned as a Tenant in Common or Joint Tenancy.
What this means if the deceased owned property jointly with another person, such as in the case of a common law marriage, then probate is required to ensure that the deceased's share of the property is properly distributed to legal heirs.
5. Probate is required if there are no designated beneficiaries or if all of the beneficiaries have predeceased the decedent. In the case of life insurance policies, retirement funds or certain savings accounts, beneficiaries are usually named. But if all the named beneficiaries have passed away or if the deceased didn't name beneficiaries, then probate is required to transfer the money or title to the beneficiaries.
One thing to remember about knowing when is probate required? Probate is required if there are significant assets to be distributed or creditors to be paid outside of what is legally stated in the will or if there is no will at all. If any of these five reasons apply to you or your situation, you can expect that probate is required and you'll have to appear in probate court. Read more about probate laws at www.ObituariesHelp.org.
Avoid these 3 estate-planning mistakes and make probate cheaper and easier for your loved ones
1. Having no will. Or having one written in another state
Have a current will. Many folks say they did a will 20 years ago. Life changes. You need a will for the state you live in now. There is a definition of residency that is a bit different for each state but includes where you live, register your car and vote in elections. An out-of-state will slows the probate process because it does not meet state requirements. It may even be declared invalid.
If there is no will, the person is said to have died “intestate.” The estate still has to go through probate court and an inventory documented. An administrator — a lawyer or family member — will be appointed by the court to distribute assets according to state law. This is a lengthy and often costly process.
If an heir successfully contests a will or the court finds the will did not align with state statutes, the deceased is also considered to have died intestate.
Many people don’t want to hire a lawyer to create their estate plan or write a will, citing time, expense and indecision. But without a will, the cost of lawyers will be even higher, and that will be paid by your estate, reducing what you bequeath your loved ones. If you are the executor of the estate, it will cost you extra time and energy.
2. Confusing estate taxes with probate
Just because your estate is too small to be subject to federal tax if it is less than the $11.58 million, you still will be subject to probate and most likely state estate tax. The bottom line: You still need an estate plan.
3. Ignoring easy ways to keep some assets out of probate
There is a streamlined probate process for small estates. The amounts vary by state — it’s just $30,000 in New York, for example, but $166,250 in California — but the bottom line is that your heirs may have fewer fees, easier paperwork and shorter timeline with a bit of planning on your part. Understand your state’s laws to take advantage of this approach.
You may qualify as a small estate if you spend some time completing paperwork. Many assets that are jointly owned or have at least one designated beneficiary will avoid the probating process, though they may be taxed by the state if your total estate is over the state limits. All your assets will be part of your inventory, but not necessarily have to go through the probate process.
First, fill out or update the forms designating beneficiaries on all your life insurance and retirement accounts.
Then, rather than creating joint ownership for all bank and investment accounts (that gives your co-owner full access to your money), ask for Transfer on Death (TOD) forms for your brokerage accounts and Paid on Death (POD) forms for your bank accounts. Many states allow a transfer on death form to be completed upon registering your car. This can be to a loved one, a trust or a family friend. This will get your money to whom you want upon your death most efficiently. Make sure you include everyone you want to inherit your assets, not one person to distribute the money according to your wishes.
Will vs. Living Trust: What's Best for You?
You have worked hard for your money and made every attempt to be a conscientious saver. So it's only natural that you want some control over what happens to your assets after you pass away. Even if you are a person of modest means, you have an estate. So, you should have an estate plan, a strategy to ensure your assets are distributed according to your wishes, and in a timely fashion.
The right strategy depends on your individual circumstances. For some, a living trust can be a useful and practical tool. For others, it might be a waste of time and money.
What Is a Will?
A will is a written document that indicates how your property will be distributed at the time of your death. It is revocable and subject to amendment at any time during your lifetime. It also allows you to appoint a guardian for your minor children.
What Is a Living Trust?
A living trust provides lifetime and after-death property management. If you are serving as your own trustee, the trust instrument will provide for a successor upon your death or incapacity. Court intervention is not required.
Livings trusts also are used to manage property. If a person is disabled by accident or illness, the successor trustee can manage the trust property. As a result, the expense, publicity, and inconvenience of court-supervised distribution of your estate can be avoided.
If a living trust is properly written and funded you can:
Avoid probate on your assets
Plan for the possibility of your own incapacity
Control what happens to your property after you are gone
Use it for any size estate; and
Prevent your financial affairs from becoming a matter of public record
While a trust sounds appealing, there are drawbacks.
A living trust is more expensive to set up than a typical will because it must be actively managed after it is created. Most importantly, however, a living trust is useless unless it is funded.
A living trust only can control those assets that have been placed into it. The funding process is necessary but can be tedious. If your assets have not been transferred or if you die without funding the trust, the trust will be of no benefit as your estate will still be subject to probate and there may be significant state estate tax issues.
Will vs. Living Trust Considerations
There are many positive reasons to establish a trust but do not overlook the fact that it will involve more upfront effort and expense. To determine if you should make the extra effort and invest in the expense of a trust, answer these questions:
Is informal probate an available option? Most states have an expedited or simplified form of probate for estates under a certain dollar threshold (that dollar value varies by state). If your estate could pass under an expedited form of probate, or if you live in a state where probate is not a complex or burdensome process, a will could be appropriate.
Will you actively manage your estate plan? If not, a living trust may not be a suitable solution. Again, a trust will only be beneficial if assets are transferred into it.
So which is best for you? In many respects, a living trust and a will accomplish similar objectives. A trust, however, allows you to realize other objectives that a will cannot. But those advantages don't come without a price. Whether or not a living trust is better for you than a will depends on whether the additional advantages are worth the cost. When choosing, remember that one size does not fit all. What is right for one person may not be right for everyone. Your estate plan should be prepared in a way that best meets the needs of you and your family.