Filing bankruptcy has long-term consequences. But it is also the only option available to many Americans in debt. Because interest rates increase on already vulnerable debtors, inaction quickens the downward spiral. The first step is recognizing when you can no longer dig yourself out of this hole, then you should seek help from a debt relief attorney. With its promise of debt forgiveness and starting anew, chapter 7 bankruptcy is preferable for most filers who fall below a certain income level and pass a “means test.” Chapter 13 bankruptcy is often more complex and requires that filers commit to a court-ordered “repayment plan” that is more affordable than their current one.
Chapter 11 bankruptcy shields businesses from personal liability. All bankruptcy types provide a respite from nagging creditors immediately after filing a petition with the bankruptcy court. An experienced bankruptcy lawyer can help you decide which financial option is best for you. O’Flaherty Law in particular helps clients explore all available avenues and weighs them against the damage to your credit score. If you cannot afford an attorney, we can also refer you to free bankruptcy services for which you may be eligible.
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O’Flaherty Law is dedicated to helping chapter 7 and chapter 13 filers achieve a debt-free life. If you are not eligible for simple chapter 7 software tools or do not have the patience for legal aid societies, an affordable bankruptcy attorney can expedite the process and smoothly pave the way forward. The aim of chapter 7 is to exempt as much property as possible and sell the rest to satisfy creditors. Those who do not qualify for chapter 7 bankruptcy will require the advice of an experienced chapter 13 bankruptcy lawyer or debt relief attorney to reorganize assets and ease the necessary cramdown required to lower monthly payments to creditors. In either case, your first consultation is free and will help you decide which option is best for you.
The purpose of a consultation is to determine whether our firm is a good fit for your legal needs. Although we often discuss expected results and costs, our attorneys do not give legal advice unless and until you choose to retain us. We take your legal matters very seriously, which is why with each consultation, we strive to ensure you feel confident about the future of your case.
Have questions prepared for your first consultation. That way, you can “vet” the bankruptcy attorney and get specific guidance. A bankruptcy attorney can dispel many myths about bankruptcy and give you a cost and trade-off analysis that is priceless. It may turn out that certain debt relief lawyers or credit card attorneys deal with collectors directly, avoiding bankruptcy altogether. Whether filing bankruptcy or pursuing another debt relief plan, a trusted bankruptcy lawyer will help you file a petition with the court, halting all debt collection activities, and represent your interests before judges and when dealing with creditors. At the very least, expect to come away with an immediate halt to credit harassment once you are represented by counsel.
Chapter 7 bankruptcy is generally a faster way to discharge unsecured debts for individuals or businesses. Unsecured debts are those not backed by tangible collateral such as a car or house. After passing a means test that determines disposable income, most personal property can be “exempted” from sale under state and federal guidelines. Chapter 7 bankruptcy liquidates the remaining possessions to satisfy creditors. Debts are discharged within months, allowing the debtor to start building “good” credit. However, the speed of a chapter 7 discharge comes with a 10-year blemish on your credit score and does not forgive certain loans. Consult a bankruptcy attorney before trying to file chapter 7 bankruptcy yourself.
Chapter 13 bankruptcy is for those who have sufficient disposable income to commit to a three to five-year repayment plan. Like chapter 7, chapter 13 bankruptcy forgives unsecured debts like medical and credit card bills up to around $420,000 and secured car and home loans that total just over $1 million. But unlike chapter 7, chapter 13 allows filers to keep secured property by making much lower monthly payments approved by the court. Chapter 13 reduces the principal loan amount, removes unsecured liens on property, and only stays on your credit score for up to seven years. A knowledgeable bankruptcy lawyer is essential to avoid major setbacks and help filers take full advantage of chapter 13 bankruptcy.
Chapter 11 bankruptcy is a vehicle for mostly corporations and partnerships to reorganize the business to settle debts over time. Unlike a “trustee” in chapter 7 and chapter 13 bankruptcies, the corporation itself serves as a “debtor in possession” responsible for accounting for assets while restructuring the company’s debt obligations. In chapter 11 bankruptcy, businesses can obtain cheaper financing while in the bankruptcy process but must also propose a reorganization strategy that sets forth how much to pay each creditor. This plan must withstand the scrutiny of court-appointed creditor representatives who convene in a Section 341 meeting in which they can suggest alterations. Once finalized, creditors must abide by the chapter 11 reorganization plan, even if it means accepting a much lower amount than what was originally owed.
Bankruptcy differs from debt settlement or debt consolidation in that it is considered a “last resort.” If debtors have sufficient collateral or assets to leverage, debt settlement or consolidation is preferable because, unlike bankruptcy, having the ability to settle debts or consolidate loans means lessening the blow on your credit score. But bankruptcy may be best if you do not have enough cash on hand to offer creditors. Whereas debt consolidation reduces the total number of creditors owed, debt settlement reduces the total amount of debt owed.
As the name suggests, debt consolidation combines various debts into one with a single interest rate. Gone is the worry of prioritizing creditors depending on variable, high interest rates. Instead, financial institutions consolidate all debts into one monthly payment that is usually lower than what you owe individual creditors. The interest rate is also lower. Rather than paying each creditor, you pay the bank or party making the debt consolidation loan. A debt consolidation lawyer can help you negotiate the most advantageous terms.
Debt settlement, on the other hand, does not necessarily require a debt settlement attorney. If you drive a hard bargain, you can proactively contact creditors yourself to see if they will accept a lower amount than the original balance due. It may be in both parties’ interests to pay or receive something rather than nothing, which could happen in bankruptcy. If you do not have enough to make a lump sum payment or timely monthly installments, chapter 7 bankruptcy may be a better option. However, when searching for online debt settlement agencies, however, be careful of fraud.
The bankruptcy means test determines eligibility for filing chapter 7 bankruptcy. Your monthly income determines your financial means after subtracting essential expenses. Your disposable income must be low enough to qualify for chapter 7. Those with low, limited, or fixed income may qualify. After passing the means test, a chapter 7 bankruptcy attorney can help you exempt most property under state and federal guidelines. Whatever is left of your fungible possessions will be sold to satisfy creditors. In several months, your debt will be discharged by a federal bankruptcy court. Creditors can no longer hound you for payment.
Debtors must use official bankruptcy forms provided by the U.S. Courts website. All forms begin with the letter “B” and are followed by a number. Because the list of forms is pages long, you can check each form yourself or ask a bankruptcy attorney which forms are necessary for a person in your case. Although far from exhaustive, bankruptcy forms may include:
B 101 Voluntary Petition for Individuals Filing for Bankruptcy
Generally, these forms require a filing fee, which can range from $310 for chapter 13 to $335 for chapter 7 bankruptcy. Chapter 11 requires a $1,167 case filing fee and $571 administrative fee. Filers must complete all the forms necessary for each type of bankruptcy petition and file the petition correctly with the appropriate federal bankruptcy court.
Bankruptcy generally discharges unsecured and consumer debts that may include:
However, bankruptcy cannot discharge certain debts such as:
Chapter 7 does not discharge car loans and chapter 13 cannot discharge certain tax debts.
At O’Flaherty Law, we want you to feel good about how your case is handled. Communication between you and the business and contract team at O’Flaherty will always be open and timely. You should feel free to bring any questions or concerns you have to us, but we have found that many clients have the same questions. We have provided the most frequently asked questions and answers below for you.
Officially retaining a bankruptcy attorney or filing a petition with bankruptcy court will result in an immediate “stay” on collections, meaning creditors and agencies must halt their activities. However, your actions are also limited in case you were thinking of hiding assets or getting a new loan. A trustee will be appointed to ensure all nonexempt property or unsecured assets are sold to pay off creditors. Upon completion of the sale or repayment plan, the court must approve the final discharge in your bankruptcy case before you are officially debt free.
The negative consequences of filing for bankruptcy are the hit to your credit score and the consequent impact on future borrowing. An employer, landlord, or bank may reject your application based on your credit score. Your interest rate on car and home loans may also increase. The negative impact diminishes over a three to 10-year period, depending on the type of bankruptcy filed. A bankruptcy attorney can help you determine whether these consequences are worth it and how to build “good” credit once your debts are discharged.
Free software tools like Upsolve can help you file chapter 7 bankruptcy for free if you are eligible. Other non-profit organizations and legal aid offices offer local pro-bono bankruptcy lawyers. If you cannot afford the $335 Chapter 7 court filing fee, you can complete the B 103A Application to pay in installments or B 103B form to have the filing fee waived.
There is no minimum debt required to file chapter 7 bankruptcy. It just has to be an amount you have no foreseeable way of repaying such that your only option is this last resort. Chapter 13 bankruptcy requires at least $419,275 in unsecured debts and $1,257,850 in secured debts.
Yes, you can buy a home after bankruptcy. There is no law against it. In fact, government-backed mortgages allow you to buy a home while you are in the process of chapter 13 bankruptcy before the discharge date. Veteran Affairs (VA) loans may start lending to eligible military members and their surviving spouses two years after a chapter 7 discharge and one year after a chapter 13 discharge. Mortgages backed by the U.S. Department of Agriculture (USDA) require borrowers to wait three years after a chapter 7 discharge. Conventional lenders generally take more time. The good news is, bankruptcy attorneys have connections with mortgage brokers and real estate agents, facilitating home ownership before, during, or after the bankruptcy process.