Prior to coming to the realization that their debts are overwhelmingly out of control, the majority of Memphis bankruptcy filers usually have stopped making payments over a fair amount of time already. If you’re still in the early stages of nonpayment such that you have just started to get the menacing letters and threatening phone calls, you should be aware of what is likely to follow, depending on the type of creditor you’re dealing with. You should contact a knowledgeable and experienced Memphis bankruptcy attorney at The Sweeney Law Firm, P.C. today.
For instance, if you are behind on your rent, there is no doubt that you will eventually be evicted. Accordingly, you should make this debt your highest priority. This is because an eviction can harm your credit for years. It can also make it very difficult for you to be able to rent from another landlord in the future. Additionally, with respect to housing, if you owe any utility companies money and do not pay them, they will disconnect your service. And you cannot reinstate it until you have paid the unpaid balance.
Also, if you have a vehicle on which you’re supposed to make payments and you miss more than one, most lenders will not hesitate to repossess that vehicle. You should note that even after the vehicle is repossessed, you will still be responsible for the balance owed. Moreover, once it is resold at auction, you will be liable for any remaining balance (which is known as a deficiency balance).
In the case of unsecured debt, like credit card debt or medical expenses, if you owe a substantial amount of money to an unsecured debt holder, that holder may find it worthwhile to sue you for the balance. If they make a judgment against you, that creditor will then have the authority to:
If any of these situations apply to you, you may want to consider filing bankruptcy.
The longer you let unpaid debt go unpaid, the more aggressive debt collectors will try to collect the debt. If they get a judgment against you, they can put liens on your home, garnish your wages, or levy your bank account. While they do need a judge to sign off on any of those, there are methods of protecting your home, car, and other property. Bankruptcy is one of those ways.
Immediately upon filing for bankruptcy, any creditor action against you must stop. This includes harassing calls and any attempts to collect the debt by going after your assets or property. This is bankruptcy’s “automatic stay”. The automatic stay ensures that any attempts to resolve the debt are kept in limbo until after the bankruptcy has been resolved.
While there are many different kinds of bankruptcy, generally, there are two that are relevant to individuals or married couples filing together. Those are Chapter 7 and Chapter 13. These two types of bankruptcy are quite different from one another and are better suited for different types of debt.
Chapter 7 bankruptcy is also known as liquidation bankruptcy. This is because, in order to repay your debts, the bankruptcy trustee will attempt to liquidate your assets. Each state and the federal government have rules governing what property you can protect. In addition to being able to protect equity on your home and a personal vehicle you use to get to and from work, you are also able to protect a certain amount of property up to a specific dollar amount.
However, if you have assets in excess of that dollar amount, the bankruptcy trustee will be able to sell that property off in order to recover some money for your creditors. In a typical Chapter 7 bankruptcy, they do not find much (if anything) to recover.
After the bankruptcy has gone through, your unsecured debt (debt not secured by real property such as your home or your car) is discharged or purged. You simply no longer owe the debt. The tradeoff, however, is that the Chapter 7 bankruptcy remains on your credit report for the next 10 years. You will not be able to file another bankruptcy for another 7 years. Of course, you can rebuild your credit over time. But it will be difficult to find anyone to extend you a line of credit for the first couple of years.
Chapter 13 bankruptcy allows a debtor to reorganize their debt. It doesn’t discharge debt in the same way that Chapter 7 does. But it can handle unsecured debt like cars and mortgages. In Chapter 13, your debts are prioritized in such a manner that a repayment plan is fashioned around your monthly budget. This leaves you with enough for basic living expenses.
While you will be expected to repay much of your debt, the bankruptcy will strip down or shave off certain kinds of debts. In addition, you may be eligible for a “cram down.” This allows you to pay off the fair market value of a collateral backing a secured debt (as opposed to the principal plus interest).
There are several advantages to Chapter 13. However, a Chapter 13 bankruptcy will stay on your credit report for the next 7 years. You will also need to be able to keep up with the payments.
The courts are mindful of those who would abuse the bankruptcy process in order to defraud creditors. For this reason, you must meet certain criteria in order to file for a Chapter 7 or a Chapter 13.
Chapter 7 filers must be able to either pass a means test or earn below the state median household income. The means test attempts to assess if the debtor can reasonably repay their debts with the amount of disposable income they have. If you fail the means test, you may have no choice but to file for Chapter 13
Chapter 13 has restrictions as well. But they are not on the amount of income you earn. They are on the amount of debt you owe. If you owe more than $394,725 in unsecured debt and more than $1,184,200 in secured debt you will not qualify for Chapter 13.
What happens if you make too much money to file for Chapter 7? But you owe too much money to file for Chapter 13? You will have to file for Chapter 11. Chapter 13 operates on a 5-year plan. Therefore, you have to repay the debt over a maximum of five years. If you can’t, then you will have to file for Chapter 11.
If you are in a tough financial situation, bankruptcy can help you get a fresh start. Please complete the form on this page if you want to discuss your personal situation with an experienced Memphis bankruptcy professional. Contact The Sweeney Law Firm, P.C. today.