The most popular myth people have about bankruptcy is that they’ll lose everything they own if they file, which is absolutely untrue. In fact, that’s another advantage of a Chapter 13 reorganization versus a Chapter 7. In Chapter 7, you’re allowed to keep some stuff, which are called exemptions, but under Chapter 13, it doesn’t matter what you own because you’re just re-organizing your debts and paying off creditors;you’ll lose absolutely nothing in a Chapter 13.
The idea is to allow you to make a fresh start, to allow you to keep some money and property, including retirement and pension plans in order to make a fresh start. The idea behind bankruptcy is not to take everything you own, but to allow you to make a fresh start. You obviously can’t keep a million dollars because that wouldn’t be fair to your creditors, so in a Chapter 7, you can keep some property and it’s usually more than that they own, so they don’t lose anything in a Chapter 7 either.
What is the Catch In No-money-down Bankruptcy?
The main catch is that the Chapter 13 will cost more than a Chapter 7, so if you have the money upfront to pay for Chapter 7, there may be reasons why you’d rather just pay for Chapter 7 and be done with it. Also, Chapter 13 is about setting up a payment plan, which means you’ll be involved in the bankruptcy for 3-5 years whereas in Chapter 7, you file and the case is over. There are a couple of negatives to Chapter 13 in general but it can save you a lot of money as well, so it’s something you should talk to your attorney about and make the best decision for you.
At What Point Will Creditors Stop Harassing Me?
The power of bankruptcy is that, immediately upon filing, there is an automatic stay, which stops all creditors from repossessing your car, turning off your electric, foreclosing on your home, garnishing your paycheck, or even calling you. All of the harassment that goes along with being in debt stops as soon as the case is filed; that’s when people get peace of mind and a fresh start.
Do I Have to Attend Court Hearings and Meetings?
In Chapter 7 and Chapter 13, there is a meeting of creditors. Despite the name, creditors rarely if ever show up for it, but it’s where you sit down with the trustee, who is appointed by the court to review your paperwork and ask questions about it.
The most common questions they ask are, about your paperwork, whether it’s complete and accurate, whether any changes are necessary and whether there are assets or issue that weren’t disclosed; basically they’re just yes/no questions that can be answered easily, so if you answer honestly, there should be no problem with the meeting of creditors.
In a Chapter 13, there is an additional hearing called a “confirmation hearing,” in which the trustee will review your plan and, if it looks good he’ll approve it and present to the court. If the court confirms it, that means your plan’s approved and you start to make payments, get out of debt and keep everyone off your back.
What Are Some Indications that I Might Need to File?
Clearly, if you’re behind in your car payments and they’re threatening to repossess, that’s a red flag. If you’re behind in your bills and you’re constantly getting calls; if you stop answering your phone and you’re afraid to apply for new credit because you know you’ll be turned down, these are all signs that you may want to consider filing bankruptcy to get out from under your debts.
Can I Eventually Build my Credit Back Up?
Absolutely! In fact in most cases, your credit score will improve after filing for bankruptcy because instead of having all the charge offs, the late payments and everything in your credit report, you’ll have a bunch of zeros; it will actually be a better credit report than before. People are always shocked, but the reality is, by the time you’re considering bankruptcy, your credit’s probably below 600 anyway.
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