What is Bankruptcy?Bankruptcy is a legal way to get rid of most of your current debt, stop harassment from creditors, and start fresh. It is a federal court process by which you can discharge some of your debt because you are unable to repay those debts. There are usually two ways bankruptcy is declared: You file for bankruptcy Bankruptcy usually takes two forms: Chapter 7 and Chapter 13. Chapter 7 BankruptcyChapter 7 Bankruptcy, otherwise known as “straight bankruptcy” or “liquidation,” allows the debtor to sell their non-exempt assets to pay off their debts; after that, the debtor will be free from all dischargeable debts. There are specific eligibility requirements that you must meet to qualify for Chapter 7 bankruptcy. Some of the scenarios where you wouldn’t be eligible for Chapter 7 include when: Your income is too high (this is determined using the “means test”): In such cases, your case may be filed under chapter 13 bankruptcy Under Chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code, some or all of your existing debt can be discharged. A “discharge” means you are not personally liable for the money and do not need to pay it back. The creditor you owe, such as a hospital or credit card company, cannot call you or take collection actions against you once the debt is permanently discharged. Note: Most people will file a Chapter 7 bankruptcy to remove credit card debt and seek debt relief. Some debts may have a bankruptcy discharge but you might have to keep personal liability for other debts. Debt Discharge Comes After Selling Off AssetsChapter 7 bankruptcy often involves the liquidation (or selling off) of assets in order to pay past debts. Only after this process is completed can you have qualifying debts discharged. Some property is protected from liquidation by federal or state bankruptcy exemptions. In fact, many people who file for Chapter 7 can keep a majority of their property. It will be up to your attorney and bankruptcy trustee to decide what you can keep, what deals you can make with the creditor, and what you need to give up in your bankruptcy case. Once assets are liquidated, the courts tend to discharge debts right away. In the whole Chapter 7 bankruptcy process, this happens about four months after you first file in bankruptcy court. Keep in mind you need to complete educational classes on debt management in between filing and receiving the discharge, or the judge may dent your debt discharge. 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: Government-funded student loans 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. Property That Can Be Taken Before a DischargeBankruptcy is intended to help you get relief from the burden of debt, so removing all of your property would be counterproductive, as you would need to rebuy a car or other items. Property that is considered necessary for modern life may be exempt from creditors taking it back. But, you may need to petition a judge to stop them. Some examples of the property a creditor might try to take back include: While this list looks scary, it is important to remember that creditors can try to take these items, but they generally will not succeed. Much of this property is protected by Utah’s exemptions or wildcard exemptions, as it is essential for work or daily life. A creditor will receive a notice saying your debts have been discharged. They can try reaffirming these items or sue you for debt if they do not agree with the discharge. How to Get a Debt DischargeFiling for bankruptcy is not an easy decision to make, but sometimes it’s necessary. You can start the process by asking an attorney what property is excluded in a Chapter 7 bankruptcy, and what could be included. They can tell you what a creditor might come after and how to legally and effectively stop them. Chapter 13 BankruptcyChapter 13 Bankruptcy requires you to make a repayment plan to pay creditors over a period of three to five years. This method is usually used if your income exceeds the limits set for Chapter 7 bankruptcy. You also need to show you comply with the eligibility requirements before you can file Chapter 13. These include: You are not a business organization Use Reaffirmation to Stop Creditors Taking Your PropertySome creditors can keep their rights over your property even following a discharge. One way this can happen is through what is called a “lien.” A creditor can use a lien to enforce payment or take back the property. The creditor will not repossess the property as long as you continue to pay the debt 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. Even though it may be counterintuitive, there are benefits to bankruptcy when you have debts that you can’t pay. You will get a clean slate, and most negative outcomes will fade from your record within a few years. But whether or not you should file for bankruptcy is heavily dependent on an individual’s specific circumstances. For this reason, it can be very beneficial to speak with a bankruptcy attorney in Utah who can explain the benefits and downsides to filing for bankruptcy in your particular situation. 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. The Honest Benefits of BankruptcyConsult 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: Collections agency calls or harassment Is Bankruptcy a Good Idea for You?The decision to file for bankruptcy is a serious one. There are several considerations worth examining closely before getting started: The impact on your future ability to access credit, lenders, or low interest rates Considering other impacts can be critical in deciding whether to file for bankruptcy or which form is a better option. Some bankruptcies may: Fail to discharge credit card debts Any of these concerns may impact the desirability of the relief provided. However, none of these reasons are worse than staying in overwhelming debt or making your financial situation worse. Sometimes, you simply need debt help and cannot get there alone. Bankruptcy will give you a fresh start, and you can work towards the financial situation you want. Despite what many think, filing for bankruptcy is not the end of the world. It can actually be the fresh start you have been looking for. The laws of bankruptcy were drafted with the purpose of giving people a second chance, and not to punish them. But that doesn’t mean you should file for bankruptcy at the first sign of financial distress. Declaring bankruptcy will have short- and long-term consequences and should only be done as a last resort. So, when should you file for bankruptcy? Before You File, Evaluate Your SituationWhen should I file for bankruptcy? This is a question most people under financial distress ask. You should probably consider other options before going this route. These options include: Getting credit counseling If, however, other options don’t seem feasible, filing for bankruptcy may give you the ability to get a fresh start. Declaring Bankruptcy Will Affect Your Credit ScoreIn exchange for discharging your debt, filing bankruptcy shows everyone that you may be a credit risk, which will be reflected in your credit score. Thus, getting a loan, a mortgage, or a credit card may be very difficult after declaring bankruptcy. You should note bankruptcy filed under Chapter 7 will remain on your record for 10 years. If you filed under Chapter 13, it would stay on your credit report for 7 years. After that, it is erased. Your Co-Signers May Be Required to Pay Your DebtsCo-signers are people who agree to pay your debt if you are somehow unable/unwilling to pay the debt. If you file a Chapter 7 bankruptcy, your creditors are allowed to go after the co-signer even if your bankruptcy case is successful. Under Chapter 13, your creditors can’t go after your co-signer as long as you make your regular payments per your agreement. Filing for Bankruptcy during a PandemicFiling for bankruptcy during a pandemic or other national emergency may be challenging, as operational hours for courts may change. So, first, make sure your local bankruptcy court is open and taking cases before you file. You should also expect a delay in the processing of your case. The Federal Government May InterveneUnder rare situations, the federal government may pass laws that could affect your bankruptcy case during a pandemic. For instance, the federal government passed a stimulus bill in response to the COVID-19 pandemic. Under this stimulus bill, several temporary changes were made to the bankruptcy code. Some of these changes include: Previously, the debt limit to be eligible to file for bankruptcy under the Small Business Reorganization Act (SBRA) was $2,725,625. Under this stimulus bill, the debt limit was increased to $7.5 million for a period of one year. The bill also changed the definition of “income” for Chapter 7 and 13 bankruptcy filers. Accordingly, payments received from the federal government that are related to COVID-19 are not considered income for purposes of bankruptcy. People with federal student loans can, without penalty, defer their payments for six months through September 30, 2020. People who already filed a Chapter 13 and are under a repayment plan can make modifications if they can show “material financial hardship” because of the pandemic. The modifications include an extension of payments for seven years. If your debts have become unmanageable or you’re facing foreclosure on your home, you might be thinking about declaring bankruptcy. While bankruptcy may be the only way out for some people, it also has serious consequences that are worth considering before you make any decisions. For example, bankruptcy will remain on your credit report for either seven or 10 years, depending on the type of bankruptcy. That can make it difficult to obtain a credit card, car loan, or mortgage in the future. It could also mean higher insurance rates and even affect your ability to get a job or rent an apartment. Advantages to a Utah Chapter 7 filing: When Is it Feasible to File Without an Attorney?What Is a Priority Debt? When Is it a Bad Idea to File Bankruptcy Without an Attorney?There are many reasons to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy. You may want to file a Chapter 13 bankruptcy because you wish to catch up on mortgage arrears, get rid of your second mortgage, cram down (reduce) your car loans, or pay back non-dischargeable priority debts, such as back taxes or support arrears. Or maybe you make too much money to qualify for a Chapter 7 bankruptcy. No matter what your reason is, most Chapter 13 cases are too difficult to file on your own. Chapter 13 bankruptcies are a lot more complicated than Chapter 7s. In addition to filling out the official bankruptcy forms (and perhaps some local forms), you must also design a proposed repayment plan, something that is very difficult to do without the expensive software that most attorneys use. Also, certain actions such as stripping your second mortgage or cramming down a car loan will usually require filing additional bankruptcy motions and paperwork with the court. As a result, even some attorneys will limit their bankruptcy practice to Chapter 7 cases because they feel they are not qualified to handle a Chapter 13. In fact, an overwhelming majority of Chapter 13 cases filed without an attorney get dismissed by the court. So if you are planning to file a Chapter 13, it is a good idea to hire a qualified attorney. If You Have a Complicated Chapter 7 CaseCertain Chapter 7 cases are more complicated than others. Your Chapter 7 will usually be more complex if you own a business, have income above the median level of your state, have a significant amount of assets, or have creditors who can make claims against you based on fraud. If any of the above applies to you, you risk having your case dismissed, your assets being taken and sold, or facing a lawsuit in your bankruptcy to determine that certain debts should not be discharged. In that case, it is advisable to hire an attorney to handle your bankruptcy. If You Are Not Comfortable Doing it on Your OwnIf you have a simple Chapter 7 case, bankruptcy can be an intimidating and time-consuming process. You will need to accurately fill out many forms, research the law, and attend hearings. If you are not comfortable with any aspect of the bankruptcy process, you should consider hiring an attorney who will prepare the forms, attend the hearings with you, and guide you through the process. Filing for Bankruptcy in UtahAre you a resident of Utah and thinking of filing for Chapter 7 or Chapter 13 bankruptcy? If so, you will have to participate in credit counseling before you file, complete the bankruptcy petition and other required forms, and file those forms in the Utah bankruptcy court. After filing, you must complete debtor counseling before receiving your discharge. Although most of the bankruptcy process is governed by federal law, there is some Utah-specific information you will need to know before filing. Pre-Bankruptcy Credit Counseling and Pre-Discharge Debtor Education in UtahIn order to qualify for Chapter 7 or Chapter 13 bankruptcy, you must show that you received credit counseling from an agency approved by the U.S. Trustee in Utah within the six month period before you file for bankruptcy. You’ll also have to take a debtor education course before you get a bankruptcy discharge. Utah Bankruptcy ExemptionsUtah has a set of bankruptcy exemptions which help determine what property you get to keep in Chapter 7 bankruptcy and play a role in how much you repay unsecured creditors in Chapter 13 bankruptcy. Some states allow debtors to choose between the state exemption system and a set of federal bankruptcy exemptions but Utah is not one of them. In Utah, you must use the state exemptions–the federal bankruptcy exemptions aren’t available. Completing the Bankruptcy Forms in UtahWhen you file for Chapter 7 or Chapter 13 bankruptcy, you must complete a bankruptcy petition, a number of schedules containing detailed information about your finances, and several other forms, including a lengthy form known as the “means test” (for Chapter 7) and a similar form for Chapter 13. Finding Means Test Information for UtahWhen you file for bankruptcy in Utah, you must compare your income to the median income for a household of your size in Utah. If your income is less than the median, you will be eligible to file for Chapter 7 and, if you choose to file for Chapter 13, you can use a three-year repayment plan (rather than five years). This is called the means test. If your income is above Utah’s median income, you still might qualify for Chapter 7, but you’ll have to provide detailed information about your expenses and payments on secured debts in order to find out. Most Chapter 13 filers also have to provide this information. Speak to an Attorney Before You File for BankruptcyIf you are considering filing for bankruptcy, it is very important you have all the information you need, especially since bankruptcy laws tend to be detailed and complicated. Speaking to a bankruptcy attorney in Utah is the best way to ensure your rights are protected. 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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