Your Credit Will Take A Hit
Bankruptcy can have a more severe negative affect on your credit than mere missed payments. A Chapter 13 bankruptcy will appear on your credit reports as a derogatory mark for seven years from the date you filed the petition. The number of points your will drop will vary depending on your current scores and other factors relating to your financial situation. For more on this, check out our article on how to build credit after a bankruptcy.
Business Use Of Chapter 11 And Chapter 7
Businesses frequently use both types of these bankruptcies. Choosing between these two chapters comes down to what business owners hope to achieve with their business in the long run. If the business is not profitable or worth keeping, Chapter 7 bankruptcy is a reasonable choice. If the business is profitable, Chapter 11 may be a good option. It is worth noting, however, that few small businesses survive the costs of Chapter 11 bankruptcy.
The Eligibility Of Chapter 13
Filing for Chapter 7 bankruptcy allows the debtor to discharge some debts by selling nonexempt properties to pay creditors. However, in Chapter 13, the debtor gets to keep his properties and repays the creditors for a more extended period of up to five years. Below are some conditions that a debtor needs to fulfill to qualify for a chapter 13 bankruptcy.
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How Luftman Heck & Associates Can Help
Prior to trying to get any type of new credit during bankruptcy, you should speak to a Cleveland bankruptcy lawyer at Luftman, Heck & Associates. Sometimes it makes more sense to wait until your bankruptcy proceeding is over before taking out loans. Once its over, you may be better off taking small loans that you can easily repay and use to rebuild your credit.
LHA can evaluate your particular situation and give you advice on whether or not obtaining credit during your Chapter 7 or Chapter 13 bankruptcy is a smart move. Contact us today by calling or emailing .
Use Caution When Shopping For Debt Relief Services
Avoid any debt relief organization whether its credit counseling, debt settlement, or any other service that:
- charges any fees before it settles your debts or enters you into a DMP plan
- pressures you to make voluntary contributions, which is really another name for fees
- touts a new government program to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
- wont send you free information about the services it provides without requiring you to provide personal financial information, like your credit card account numbers, and balances
- tries to enroll you in a debt relief program without reviewing your financial situation with you
- offers to enroll you in a DMP without teaching you budgeting and money management skills
- demands that you make payments into a DMP before your creditors have accepted you into the program
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What Is Chapter 13 Bankruptcy
Under the chapter 13 bankruptcy law, an individual with a regular income develops a repayment plan for all or part of their debt for three to five years. This is also a wage earners plan and involves one monthly payment to the bankruptcy court divided by the bankruptcy trustee among the creditors.
The court must approve the payment plan based on individual income and expenses. Immediately the bankruptcy petition is filed, the bankruptcy court issues an order stopping creditors from pursuing the debtor. It also stops wage garnishment. Once the repayment agreement is fulfilled, the remaining debts can be discharged.
Typical Chapter 13 Bankruptcy Case
What does a successful Chapter 13 applicant look like?
Consider Bill and Kathy, a married couple with a home that carries a $150,000 mortgage. Bill works, Kathy doesnt, but they file jointly for Chapter 13 protection. The couple also owes $7,000 on a car loan and has nearly $20,000 in credit card debt.
Two weeks after filing a petition, they submit a Chapter 13 repayment plan that shows how Bills income can be used to make mortgage and car payments, and it can repay part of the unsecured credit card debt. Their plan includes three categories of debt: priority, secured and unsecured.
Priority claims must be fully paid. They include the bankruptcy filing cost, some taxes and child support. Secured debts with collateral, like a house or a car, also must be paid in full in most cases.
Unsecured debts, like credit cards, are negotiable. The judge will review your income and repayment plan and rule how much youll owe your unsecured creditors. The range is everything to nothing, so dont prop your feet on the judges desk during the proceedings.
Bill and Kathy had to repay court costs and back taxes they owed. They had to become current on their mortgage and car payments. The judge discharged half their credit card debt.
The couple then began making payments to their trustee, who conveyed the money to creditors and monitored Bill and Kathys progress.
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How Do Creditors And Others View A Chapter 13 Bankruptcy Wersus A Chapter 7 Bankruptcy On My Credit Report
Most individuals look at Chapter 13, as the âbetterâ bankruptcy process for their credit report. People think by paying back their debts in Chapter 13, it will allow their creditors to see that they are making good-faith payments on their debt which creditors will like that better. While that may be true, being in a Chapter 13 repayment plan also shows creditors that you can maintain a budget and make regular payments to creditors. All types of bankruptcy may leave negative information on your credit report however, most negative impacts are usually minor. In a Chapter 7 bankruptcy, your debts are wiped away, creditors realize that you have no debt and are likely to extend credit. Some lenders will view you as less of a risk and be willing to extend credit to you rather than someone who has other debts. Creditors also know that individuals who file Chapter 7 bankruptcy, canât file Chapter 7 again for another eight years. So, creditors may be more likely to extend credit to you because you are less of a risk than someone who can decide tomorrow they want to file bankruptcy. Either way, once you get your discharge in a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, you will get credit again and be able to increase your score.
The Chapter 13 Process
The Chapter 13 filing process generally takes 95 days from the filing of the petition to the approval of the repayment plan. But the bankruptcy wont actually be discharged until the three- to five-year plan is completed.
Heres what to expect over a typical Chapter 13 bankruptcy proceeding.
- A list of creditors and how much is owed to each
- Evidence of income
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Ways To Rebuild Credit After Bankruptcy
To many, bankruptcy may seem like a hole you cannot climb out of, but this isnât true. There are steps you can take to start rebuilding your credit after filing for bankruptcy.
Tip #1: Review your credit reports. If you donât know where you stand, you canât take measures to repair your credit. Frequently monitoring your reports is a simple and smart way to stay abreast of your expenses. Plus, if any errors show up in your credit report, youâll be able to dispute them sooner rather than later.
Youâre entitled to free weekly reports from AnnualCreditReport.com as well as a free credit report from the three major credit bureaus â Experian, Equifax, and TransUnion â once a year. It is best to take advantage of this.
Tip #2: Make on-time payments. Payment history accounts for 35 percent of your overall score. It is the single most significant factor in calculating your score, according to two of the most popular credit score models, FICO and VantageScore. Making payments on time consistently will boost your score and improve your credit history.
If youâre worried about late payments or missing due dates, you can set up automatic payment transfers or notifications.
Not using a credit card can help you avoid this entirely. One fantastic tool for you to consider is Point Card.
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Making The Chapter 13 Repayment Plan Work
The provisions of a confirmed plan bind the debtor and each creditor. Once the court confirms the plan, the debtor must make the plan succeed. The debtor must make regular payments to the trustee either directly or through payroll deduction. These will require adjustment to living on a fixed budget. While confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur new debt without consulting the trustee. This is because additional debt may compromise the debtors ability to complete the plan.
A debtor generally must make plan payments through payroll deductions, if the debtor has a job. This practice increases the likelihood that the debtor will make the payments on time and will complete the plan. In any event, if the debtor fails to make the payments due under the confirmed plan, then the court may dismiss the case or convert it to a liquidation case under Chapter 7 of the Bankruptcy Code. The court may also dismiss or convert the debtors case if the debtor fails to pay any post-filing domestic support obligations , or fails to make required tax filings during the case.
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What Are The Steps In Filing Chapter 11 Bankruptcy
There are multiple steps to filing Chapter 11 Bankruptcy depending on the case and fact pattern. Below is a very basic example:
Before You Consider Filing For Bankruptcy
Experts suggest working with a reputable credit counseling agency that can help you set up a budget, learn money management skills and create a debt management plan. Remember that bankruptcy carries significant long-term credit penalties and can make getting loans in the future very difficult. Also, most experts advise to talk to a bankruptcy lawyer if you decide to pursue filing for bankruptcy.
Part of understanding bankruptcy is knowing that it definitely affects your credit and future ability to use loans.
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Have Questions About Chapter 13 Credit Reporting
Your credit report doesnt matter so much while youre in Chapter 13. Additionally, if your credit is already in the 500-600 range, a Chapter 13 is unlikely to hurt it much more. In fact, Chapter 13 can prevent your credit score from going into freefall. The successful completion of your repayment plan under Chapter 13 can give you the solid ground you need to begin rebuilding your credit. If you have any questions or concerns regarding a chapter 13 bankruptcy, the attorneys at Allmand Law Firm can help. Feel free to contact us today to set up a free consultation.
Get Your Credit Report Fixed
So, what to do next?
Youve gotten your reports and check them for these errors and youve found one or more of them . No worries, get free help drafting written disputes to your creditors and the bureaus and set your problem up to get fixed as soon as possible!
If it takes a lawsuit to fix it, remember, the law requires that the Credit Bureaus pay the costs and attorneys fees for that .
Youve done the work of going through bankruptcy make sure you get the Fresh Start that you deserve!
More on life after bankruptcy
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What Is Chapter 11 Bankruptcy
Chapter 11 is often called the reorganization bankruptcy. Its for businesses that want to keep operating but need time to restructure their finances in order to pay the bills.
Filing can be done voluntarily, or it can be forced on a business if three or more creditors file a petition with the bankruptcy court.
Once filed, creditors are temporarily prohibited from taking any action. The business or individual has four months to come up with a reorganization plan, though that can be extended to 18 months. After that, creditors can propose reorganization plans.
The plan is basically a contract between the debtor and creditor that defines how the business will operate and pay its financial obligations. Most plans include some downsizing to reduce expenses and free up assets.
Once a business or individual files the plan, creditors vote whether to accept it. They are usually cooperative since the next option is usually filing for a Chapter 7 bankruptcy. In Chapter 7, assets are liquidated and creditors could get little or nothing.
There are three classes of creditors priority, secured and unsecured. They must vote in favor for it to be approved by bankruptcy court.
If the plan is rejected, the business or individual can ask for a cram down, in which they ask a judge to force creditors to accept it. In other words, they want to cram it down their throats.
There is no time limit on completing the repayment plan. Most take between six months and two years.
Can I Remove A Bankruptcy From My Credit Report On My Own
It is possible to pursue removing a bankruptcy from your credit report on your own, and some people have managed to do so. However, it is a time-consuming, labor-intensive process that many people find complicated, confusing, and frustrating.
We encourage you to learn as much as you can about credit report disputes and credit repair processes, then count the real cost of DIY credit repair before committing to handling this important task on your own.
People who have needed to remove a bankruptcy from their credit reports have achieved success by working with a provider like Lexington Law Firm. If other questionable negative items are affecting your credit report and score, we can help you challenge those as well.
Contact us today for a free personalized credit report consultation to find out how we can help you meet your credit goals.
Reviewed by Vincent R. Mayr, Supervising Attorney of Bankruptcies at Lexington Law. by Lexington Law.
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Stay Away From Credit Repair Companies
You see the ads in newspapers, on TV, and online. You hear them on the radio. You get fliers in the mail, email messages, and maybe even calls offering credit repair services. They all make the same claims:
We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!
We can erase your bad credit 100% guaranteed.
Dont believe these claims: almost every time they are a scam. The fact is theres no quick fix for creditworthiness. There are no overnight solutions to fixing your credit history.You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan.
Look for these signs to determine if a credit repair company is trying to pull a scam:
The Chapter 13 Trustee’s Role In Your Case
Many Chapter 13 trustees play an active role in the cases they administer. This is especially true in small suburban or rural judicial districts, or in districts with numerous Chapter 13 bankruptcy cases. For example, a trustee might:
- give you financial advice, such as helping you create a realistic budget
- help you modify your plan, if necessary
- give you a temporary reprieve or take other steps to help you get back on track if you miss a payment or two, or
- participate at any hearing on the value of an item of property, possibly even hiring an appraiser.
Despite the trustee’s interest in your finances, your financial relationship with the trustee has its limits.
You will be in control over money and property you acquire after filingas long as you make the payments called for under your repayment plan and you make all regular payments on your secured debts.
However, if your income or property increases during the life of your plan , the trustee can seek to amend your plan to pay your creditors a greater percentage of what you owe them rather than the lesser percentage originally called for in your plan. The trustee might also be involved if your income decreases and you find you have to convert from Chapter 13 to Chapter 7.
For more information about both Chapter 7 and 13, read the self-help book The New Bankruptcy: Will It Work for You? by Attorney Cara O’Neill .
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Special Circumstances That May Allow For Credit
Once you have filed for bankruptcy, you are not typically allowed to get approved for credit unless your situation involves a special circumstance. Several special circumstances in which the court may allow you to obtain new credit during bankruptcy include:
- Medical Expenses Although you may not consider medical expenses as an incurring debt, they are a form of debt. When you visit a medical professional for services and receive a bill at a later time, the Bankruptcy Code considers this new credit.
- A New Vehicle Its common for individuals to purchase a new vehicle during their Chapter 13 bankruptcies. While getting a loan from a conventional lender can be tough, lenders who cater to individuals making Chapter 13 payments do exist. If you get approved by one of these lenders, understand that you will be paying a high interest rate.
- You may be able to get a new credit card during Chapter 13. If youd like to rebuild your credit, opening a secured credit card can help.
Although you typically need permission to incur additional debts during bankruptcy, small debts that are outlined by your Chapter 13 trustee, as well as any new tax liabilities that you incur, do not require the courts approval.