Declaring personal bankruptcy is a stressful and confusing time for over a million American families each year. This bankruptcy FAQ will answer many of the most common questions and explain the best debt solutions when filing under chapter 7 is not appropriate.
Bankruptcy FAQ
A range of questions will be answered in relation to student loans, unpaid taxes, car loans and FICO credit scores. There are a number of alternative sources of guidance, including attorneys and qualified credit counselors.
How Long Does Declaring Personal Bankruptcy Take?
The overwhelming majority of individuals who file under chapter 7 can write off personal debt in just 4 to 6 months. However, those who file under chapter 13 due to non-exempt assets or an income above the state median, will need to make payment each month for a period of either 3 or 5 years.
Does Declaring Personal Bankruptcy Affect FICO Credit Scores?
The majority of those who file have a low FICO credit score. Chapter 7 bankruptcy will show on a credit report for a period of 10 years. Provided that repayments are made on other agreements (mortgage, loans and credit cards), scores will start to improve after a couple of years. Consider taking out a bad credit unsecured credit card to help with the re-building of credit.
Can Student Debt Be Cleared?
It is not normally possible to write-off student debt. The only exception to this rule is if 'undue hardship' can be proven. Seek specialist credit counseling from a debt advisor as there are ways to reduce the amount repaid each month.
Can Past-Due Income Taxes Be Written-Off?
Declaring personal bankruptcy cannot be used to clear money that is owed to the IRS. However, it can be used to help devise a suitable repayment plan if payments aren't currently affordable.
Is it Possible to Write-Off Car Loans?
Whilst beyond the scope of this bankruptcy FAQ to cover all the different scenarios, a car loan can only be cleared if the car is returned to the lender. Car repossession deficiencies can be eliminated. Should the borrower wish to keep the car, this will require a reaffirmation of the debt under current chapter 7 bankruptcy laws. Repayments will need to be maintained until the loan is cleared.
What About Non-Exempt Assets?
Any assets that aren't exempt under existing chapter 7 bankruptcy laws will need to be turned over to a trustee. These will be sold and the money disseminated to creditors. Non-exempt assets include (but are not limited to) a valuable collection, sports car and second home.
Is the Family Home Safe?
Whilst it isn't possible to write-off secured debt and keep the asset, declaring personal bankruptcy will bring a halt to repossession proceedings. This could provide time to arrange a short sale or get a mortgage modification to improve affordability.
The above bankruptcy FAQ provides basic answers to important questions. Due to the importance of making the right decision, it is essential that the debtor seeks professional assistance from a qualified debt counselor before proceeding.
Sources
uscourts.gov
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