24 Aug Should You File for Bankruptcy if a Strong Economy is Just Around the Corner
- Bankruptcy will destroy your credit and remain on your credit report for up to 10 years.
- In many cases, you may also lose certain secured assets like homes and cars in a liquidation to pay your creditors some of what you owe.
- You must qualify to file for bankruptcy, and your income must meet an income means test. Each state has a different income level for qualification.
- If you do not qualify for a Chapter 7 bankruptcy to liquidate your debts, you may be required to pay back a significant portion of your debts under a Chapter 13 Bankruptcy, and still suffer the negative impact to your credit score.
- In addition to the fees you will pay to courts and your attorney, you will also incur fees for court approved financial education courses you must successfully complete to have your debts discharged.
The coronavirus brought on a global health and economic crisis unlike anything we have ever experienced, and experts do not agree on the long-term impact. Some predict a lengthy recession, while others point to rapidly improving job numbers that indicate a short-lived downturn, followed expansion, and growth.
If your job or health has been directly impacted, fear of the unknown can lead to decisions that could negatively impact your finances for a decade or more. When government assistance is not providing enough income to cover job losses, should you file for bankruptcy or hold out for the economic recovery?
The Bankruptcy Option
Chapter 7 liquidates assets and discharges qualified debts. The process takes less than a year and can eliminate the balance on most unsecured debts. The bankruptcy trustee will sell any non-exempt assets to repay debtors before a discharge occurs. Filers must pass a means test to qualify for a chapter 7 bankruptcy. The bankruptcy remains on your credit file for 10 years and you must attest to filing bankruptcy on future credit applications.
Chapter 13 is a debt reorganization that requires you to repay debts within three to five years. The court trustee creates a repayment plan approved by creditors and oversees the debt repayment. Filers can typically retain the home and vehicle as long as you make payments on the loan.
A bankruptcy temporarily destroys your credit and remains on your credit report for up to 10 years. In many cases, you will lose secured assets such as your home and vehicles. Bankruptcy does not generally discharge debts associated with child support, alimony, tax obligations, or student loan debt.
Retirement accounts, pensions, social security payments, child support, alimony, disability, and unemployment are typically protected from creditors.
Strategies to Delay or Eliminate the Need to File Bankruptcy
If you think you might need to file bankruptcy, consider these strategies before you begin the process:
Mortgage relief: The CARES Act offers payment relief for homeowners with federally owned mortgages. At your request, lenders must grant a forbearance for up to 180 days, renewable for up to a year with a hardship attestation. The CARES Act also requires lenders to offer repayment options that include adding missed payments to the end of the loan, a loan modification, or refinance.
Contact creditors for payment deferrals: Due to the scale of economic shutdowns most lenders have established programs to help borrowers. Federally managed student loans received an automatic six-month payment waiver. Credit card companies grant payment relief between one and three months without penalties or credit reporting. Auto lenders could also waive payments for those impacted by COVID-19.
Slash spending: The widely available payment relief, government stimulus checks, and bonus unemployment payments are temporary measures to help you endure the current economic crisis. To prevent long-term financial damage, find ways to make deep cuts in spending. If income does not quickly return, short term payment waivers may not be enough.
While many families will face financial challenges throughout 2020, with a little forethought and planning you might be able to avoid this worst-case scenario by doing the following:
- Cut spending now.
- Take advantage of payment waivers.
- Call creditors as soon as you have a shortfall.
- Protect secured debt (home and car) from default to avoid a repossession or foreclosure.
- Find temporary employment if your job does not quickly call you back.
- Negotiate unsecured debt (credit cards) if you are unable to keep up with payments.
Frequently Asked Questions
How long does a Bankruptcy stay on your credit report?
A Chapter 7 Bankruptcy will stay on your credit report for 10 years, while a Chapter 13 Bankruptcy will remain on your credit report for 7 years.
Can I be forced to sell my home in a Chapter 7 Bankruptcy?
Yes. If the amount of equity you have in your home is above the exemption amount, the Bankruptcy Trustee can force the sale of your home and use the proceeds to pay off the loan balance, then distribute the remaining amount you up to the amount of the exemption. Any remaining funds left over will be used to pay your creditors.
Why is a Chapter 13 Bankruptcy Worse a Debt Settlement Program?
In a chapter 13 Bankruptcy, you will be required to pay back a portion of your debt over a 3-5 year period of time. Furthermore, in Chapter 13 Bankruptcy you will have to pay fees to the court, fees to an attorney and fees to complete a court approved financial management and education course. In addition to this, the satin of Bankruptcy will be reported on your credit report for 7 years form the date of filing. There are no mandated financial education courses in a debt settlement program, no court costs, and while your credit score may drop as a result of non-payment of your debts in the short term, you can immediately begin to improve your credit score without the negative impact of Bankruptcy being reflected on your credit report for 7 years.
About Titan Consulting Group
Titan Consulting Group helps consumers evaluate various debt relief options and choose the right program that best fits their short-term and long-term financial goals. We work with consumers seeking debt consolidation loans, or who may be considering options like debt negotiation or bankruptcy. Through our network of partners, we can help you find the right solution to reach your goals and get back to living a life free from high interest credit card debt.
Contact us today at (888) 488-4517 or Apply Online now.