The most common dischargeable debts in a chapter 7 personal bankruptcy are credit card and medical debt. Other debts include credit card charges, collection agency accounts, medical bills, personal loans, utility bills, repossession, auto deficiency claims, mortgage deficiency claims, business debts, money judgments, apartment lease balances, civil court judgments, tax penalties and unpaid taxes if they are more than 3 years old.
What Debts Are Here To Stay?
Non-dischargeable debts include student loans, except if you can prove undue hardship. In addition, any debts that you fail to schedule in your chapter 7 bankruptcy, certain taxes that are due within three years, sales taxes, debts for child or spousal support or alimony, debts owed to a former spouse if they arose out of a divorce or separation, debts to government agencies for fines and penalties, debts for personal injury caused by operation of a motor vehicle while intoxicated, debts for homeowners association fees, attorney’s fees in child custody and support cases, court fines and penalties and criminal restitution are also non-dischargeable.
Are There Downsides To A Chapter 7 As Well As Some Of The Pros?
The downside to a chapter 7 is that your credit score can suffer temporarily and bankruptcy cannot take care of all debt problems. It cannot eliminate child support and alimony obligations. It cannot eliminate student loans or certain income taxes. It can hold you back from purchasing a home in the next two to three years.
Initially, your credit score may dip about 100 points right after the bankruptcy. Over the next 12 to 24 months, you can improve your credit score. Today, your credit score will improve much faster than it has in years passed. By getting a secured credit card or another form of credit and repaying that credit charge each and every month, your credit score will start to climb over the next two years.
Chapter 7 is an efficient way to get out of debt quickly, and after the six months of the proceeding, you can start to rebuild your credit immediately. You may get offers for new credit cards after a bankruptcy filing. Bankruptcy can be a much more efficient way to get out of debt rather than debt settlement. If you go into a debt settlement program and pay back your debt over three to five years, your credit score may not improve during that time. Right after a bankruptcy, you can start to improve your credit score rather quickly.
Is Chapter 7 Bankruptcy Or Any Bankruptcy Really Right For Every Serious Debtor Or Should Other Alternatives Be Explored First?
Lawyers should explore bankruptcy alternatives with their clients. Chapter 7 bankruptcy is not right for everybody. It does not prevent a secured creditor from foreclosing on your home or repossessing a car. In addition, a bankruptcy discharge eliminates debts, but it does not eliminate liens. A lien allows a lender to potentially take property, sell it at auction, and apply the proceeds to a loan balance. If you have a judgment lien, it stays on your home until the debt gets paid off or you eliminate the lien.
Chapter 7 does not eliminate student loans, tax debts, or other non-dischargeable debts. Because of this, the following factors must be considered before filing bankruptcy: whether the client is considering purchasing a new home, income level for the next couple years, or if marriage is in the near future.
What Are Some Of The Steps That A Debtor Needs To Be Steering Clear Of When Hoping To Get Out Of Debt?
Debtors should steer clear of taking out a payday loan to try to solve debt issues. Payday lenders can be predatory. They are often based offshore and they do not comply with local collection laws. In addition, debtors should not take out funds from their 401(k) to repay debt. Be careful about taking out a large amount out of a retirement plan to repay certain creditors. Those funds are subject to tax once they are withdrawn from a retirement plan.
Debt settlement can be an option as an alternative to bankruptcy, but keep in mind that debt settlement can create an income tax liability. You may receive a 1099C for the debt forgiven by that creditor and that amount can become an income tax liability to you. You want to consider all of your options before you decide to enter into a debt settlement.
Another area that you want to avoid is debt management companies. Some of them charge up to $8,000 in fees even before they start to help you resolve your debt. In addition, you could end up with one or more creditors filing lawsuits against you, obtaining judgments in the debt management process. The debt management contract needs to be read very carefully.
For more information on Bankruptcy Law In Maryland, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (240) 539-9393 today.