What Are The Top Misconceptions About Bankruptcy?
The most common misconceptions about bankruptcy come from two different ends of the spectrum. On one hand, there are some individuals who think that bankruptcy is easy and that you just pay your deposit with the attorney, and in a couple of months, the case is over. That is not accurate. Bankruptcy does require some work from a filer, even when they have an attorney. The bankruptcy process requires comprehensive financial disclosures and transparency. In order to put together the forms that provide those disclosures, we need participation from the client to make sure that we are adequately informing the court. Additionally, in some instances, a client may have to pay into a bankruptcy case in order to get the benefit of the discharge that wipes out the debts. Sometimes that contribution is in the form of a monthly payment plan in a Chapter 13 case and in Chapter 7, a client may have to pay in or give up assets as part of a tradeoff for the liquidation benefit.
On the other end of the spectrum of misconceptions are clients who think they are going to have to give up their pots and pans, and the clothes off their back in order to get the bankruptcy benefit. A chapter 7 bankruptcy allows a bankruptcy filer to keep a certain amount of basic belongings and still obtain the discharge order.
What Is The Most Common Type Of Debt That Leads To Bankruptcy?
There are several types of debt that are common in leading to bankruptcy. Typically, they are credit card debts, medical bills, and back taxes.
How Do Payday Loans Work?
A payday loan is a loan from a lender that is an advance on someone’s paycheck. Usually, the lender will offer money a few days or weeks in advance of when a paycheck is expected and will charge a hefty interest in order to pay the money before the paycheck is received.
What Are The Dangers Associated With Using Payday Loans?
The dangers of payday loans are twofold. First, payday loans typically charge much more aggressive interest charges and fees for service. Secondly, payday loans often lead to a snowball effect of debt. Most consumers who look to payday loans are already on a very tight budget, living from paycheck to paycheck, and the payday loans chop off a big piece of the money that the consumer is receiving. Payday loans received within 60 days of bankruptcy filing may be determined to be non-dischargeable. The consumer would still be obligated to pay the payday loan, even after they’ve received a bankruptcy discharge.
What Are Some Signs That Show Someone To Be Headed Towards Bankruptcy?
The two most prominent signs that someone is heading towards a bankruptcy are:
- The amount of debt is totally disproportionate to the consumer’s ability to pay on the debt.
- Debts are continually getting higher, instead of going down, in spite of the consumer’s best efforts.
Unfortunately, when debt gets to a point where it’s starting to pile up, that is typically an indication that we are looking towards bankruptcy. Other indications can be lawsuits and or if a consumer has several problem debts, rather than a singular or small number of debts.
How Do I Know Which Bankruptcy Is Going To Be Right For My Situation?
While there are a number of factors that help us identify the best chapter of bankruptcy for a particular situation, the two factors that are typically more prominent in decision making are:
- The consumer’s household income.
- The assets they have and what they would have to give up if they were to file a Chapter 7.
Part of the determination of whether a consumer can file a Chapter 7 or a Chapter 13 is how their household income scores on the bankruptcy means test. If a consumer makes above a certain amount of money, based on their household size and household income, they may not be eligible for a Chapter 7. In that case, a Chapter 13 is likely more appropriate. In Chapter 7, while it can be relieving for consumers not to be obligated to a monthly payment plan for a period of time, the tradeoff is that a consumer is limited on the amount of loans that they can keep if they do not desire to give up the belongings or pay for them in a lump sum.
Is It Ever a Good Idea To Convert A Chapter 13 Bankruptcy To A Chapter 7?
In some instances it can be appropriate to convert a Chapter 13 case to a Chapter 7. The consumer would first review their income to see how closely their income meets the qualifications of the means test and secondly, the consumer would look towards their assets to see what their commitment is going to be into a Chapter 7, in terms of having to give up assets.
For more information on Misconceptions About Filing Bankruptcy, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.
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