What Impact Does Bankruptcy Have on my Credit?

Filing for bankruptcy under either chapter 7 or chapter 13 will be listed on your credit report for 10 years following your initial filing. While it will be listed for 10 years there is no clear outcome for what this listing will ultimately do to your credit as a whole. Some creditors may think that seeing a bankruptcy on your credit report means that you’ve at least improved your current credit, while others still may think that your bankruptcy is a good thing as it allows you to open new lines of credit while not having to worry about previous financial obligations that would have been discharged during your bankruptcy. Ultimately, the impact of filing for bankruptcy is creditor specific--some creditors will think that filing for bankruptcy is a positive mark on your credit, others will be ambivalent, and others will think it’s a negative mark on your credit.

To better understand if filing for bankruptcy is the right action for you to take, it is recommended that you set up a consultation with a local bankruptcy attorney.

Can I file for Bankruptcy if I own my home?

Yes--but the consequences of bankruptcy will have different effects on what happens to your home based on which chapter you file under and the equity you hold in the home. When filing for bankruptcy a certain amount of your property will be exempted from the bankruptcy estate. You may have the option to choose between two sets of exemptions: either the standard federal exemptions or state-specific exemptions. Michigan is one of the states which has its own exemption list, which differs slightly from the federal concerning how much value is exempt in the home. Michigan exempts up to $40,475 in equity when it comes to real property, $60,725 if you are over 65 years old, and completely exempts the property if you and your spouse both outright own your home. The federal exemptions go up to $25,150, so if you’re specifically worried about protecting your home in bankruptcy it would be advantageous to use the Michigan exemptions. Even if the Michigan exemptions doesn’t quite cover the equity you have in the home, filing under chapter 13 will give you the chance to restructure your debt and catch up on mortgage payments so that you can make some headway in paying back your mortgage.

To better understand if filing for bankruptcy is the right action for you, it is recommended that you set up a consultation with a local bankruptcy attorney.

Smart Money: Your Tax Return Could be a Ticket to Financial Freedom

This tax season, the average American taxpayer is receiving a $3,000 return. What

will you spend your tax return on this spring? Studies have shown that 43% of

Americans put their tax return into savings, 36% put the money towards paying off

their debt, 10% put money towards vacation, 6% purchase a luxury item, and 5%

make a necessary purchase, such as a house or car. While all are worthy ways to

spend money, paying off your debt could be the best investment you can make

with your tax return if you are in debt. Carrying around high-interest debt, with

interest compounding against you every month can be especially stressful. Surveys

tell us that debt is the most common cause of financial stress in the United States.

Your tax return could be a ticket to financial freedom.

If you have excessive amounts of debt that you are struggling to pay off, you could

spend your tax return most efficiently by putting the money towards filing for

bankruptcy. Bankruptcy offers the opportunity for you to get caught up on mortgages

or car loans without the threat of repossession or foreclosure and sometimes you can

be relieved from the legal obligation to pay some debts. To better understand if this

is something worthy of investing your tax return in, set up a consultation with your

local bankruptcy attorney to learn more.

After Bankruptcy: What is Next?

Bankruptcy gives you a fresh start in your financial life. But once you’ve
received your discharge from your bankruptcy, you may not know exactly
what steps to do moving forward.

1. Collect and file all your bankruptcy paperwork

Be sure to keep a copy of your bankruptcy petition, the 40-50 page document
that details your financial information. Also keep your notice of bankruptcy
filing  as well as a copy of your discharge order that you received from the
court.

Why should you do this? Sometimes when lenders are considering you for
new credit, they want to see your bankruptcy papers. It is also important to
keep these documents in case anyone wants to collect on your old debt in the
future.

2. Start a budget and review it frequently

Many bankruptcies begin as a result of unforeseen medical expenses, job
losses, or sudden family changes such as divorces or birth of children. Creating
a budget allows you to prepare and set goals for the future. There are many
great budgeting tools you can access through apps on your phone.

3. Start an emergency fund

As part of starting a budget, you will want to designate some funds for
unforeseeable emergency financial events. This fund could even turn into
retirement savings or college tuition savings in the future.

Why should you do this? This fund will prevent you from creating new debt
when emergencies arise. This fund will also make you feel less anxious about
your finances and prevent panic when emergencies happen.

4. Think about ways to improve your credit

Fresh out of your bankruptcy, you will have little to no debt. This is a great
opportunity to build your credit. However, be careful not to let yourself get
carried away. Begin with a small credit limit, monitor your charges, and pay
more than just the minimum amount every month. Another opportunity for
building credit is by investing in a secured-CD.

5. Explore financial management resources in the area

Because bankruptcy allows a fresh start on your financial life, it never hurts to
learn more tips and tricks to navigating personal finance in the future. You can
check out free seminars offered by local non-profits or community colleges.

Discharging Student Loans

If you are looking to discharge your student loans, it is a complex process,
but not impossible.After 1990, student loans are no longer considered
“dischargeable.” This means that in order to seek relief, an adversary
proceeding is required--a lawsuit must be filed separate from the
bankruptcy case. You must prove that the payment on your student loans
causes an undue hardship. Most courts use the Brunner test to measure
the burden of the debt. It is a three-pronged evaluation that requires the
following: 1) the individual and their dependents cannot maintain a minimal
standard of living if they were required to pay the student loan,

2) there must be additional factors that guarantee this poor standard of living
will continue throughout the whole payment period, and 3) the individual has
made good faith effort to pay the loans. If you can demonstrate that you meet
these conditions, your student loan could be cancelled as a whole.

There are advantages and disadvantages to discharging student loans. To better
understand if filing for an adversary proceeding is for you, it is recommended
that you set up a consultation with your local bankruptcy attorney.

Financial Options In A Chapter 13 Bankruptcy

Many people considering a Chapter 13 Bankruptcy worry that their financial life will be on hold for the duration of the bankruptcy, which can take from 36 to 60 months depending on the situation.  This is simply not true.  Individuals in a Chapter 13 Bankruptcy are still able to take major financial steps in their lives, only with the added layer of gaining court approval.  These major steps can be accomplished by having your attorney file Motions and/or Notices with the court.  Motions to Incur Debt, Motions for Substitution of Collateral, and Notices of Sale or Lease of Property are a few examples of this.  Provided that the financial steps are logical and with sound reasoning, there is usually little difficulty gaining approval from the court.

To find out more about actions that can be taken within a Chapter 13 Bankruptcy, it is recommended to set up a consultation with a local bankruptcy attorney.

Non-Exempted Property in Bankruptcy

If, at the conclusion of the creditors meeting, the assigned bankruptcy trustee concludes you have nonexempt property, you might be required to either surrender those assets or provide the assigned trustee with its equal value in payments. If the property isn't worth very much or would be cumbersome for the trustee to sell, the trustee may "abandon" the property -- which means that you don't have to surrender it, even though it is not exempted. Your bankruptcy lawyer will let you know if this is the case.

The majority of property owned by debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to give up any property, unless it is collateral for a secured loan.

For information on our bankruptcy services or to speak with one of our Grand Rapids bankruptcy attorney, feel free to give us a call at (616) 920-0555.