Bankruptcy can be a beneficial tool when you utilize it properly. Also, in order to reap the benefits, you must complete all necessary aspects of the process.
Therefore, it can be helpful to understand the key aspects of the bankruptcy process before you begin. There are certain financial requirements in particular that you must meet before, during and after filing for bankruptcy.
Before filing for bankruptcy, you must complete a credit counseling course. This course must be through an approved credit counseling agency, and you must submit the certificate of completion with your bankruptcy application. The course completion and filing must be within six months of each other. There are certain instances where you may not have to complete the counseling course:
In all cases, the bankruptcy court must approve of the pardon.
If you desire to file for Chapter 7 bankruptcy, the means test is a requirement. The first step is to compare your average income over the past six months with the average income in the state. If your income falls under the average, no further calculations are necessary, and you may file for Chapter 7. On the other hand, if your income is higher than the average, you must submit additional information for further consideration. Depending upon the final numbers, you may still qualify for Chapter 7 or have to file for Chapter 13.
Financial management course
In order to encourage filers to budget better and prevent bankruptcy in the future, you must complete a debtor education course before receiving a full bankruptcy discharge. This course covers income responsibility, budgeting and other financial tools. Upon completion, you must submit the debtor education certificate to the court.
Along with understanding the requirements that you must complete, it is important to make sure you fulfill each one by completing all paperwork and submitting any additional material. Doing so may aid in avoiding a bankruptcy denial or cancellation.
Many people struggle to pay their debts and living expenses each month because of health issues. Missing days at work can mean a much smaller paycheck for those who do not have sick leave. In some cases, filing bankruptcy may be the answer to lowering the number of bills coming in so that a person can afford living expenses.
However, filing bankruptcy is not likely to eliminate student loan payments, according to a recent court ruling.
The Brunner test defines hardship
There is an undue hardship test known as the Brunner test which identifies whether the court may discharge student loans. To “pass” the test, a person must prove that repaying the student loans would keep him or her from achieving a minimal standard of living, that this financial situation is likely to continue during the repayment period and that he or she has tried to repay the student loans with a good faith effort before resorting to bankruptcy.
Health problems may cause hardship
The woman whose case the bankruptcy court denied suffered from diabetic neuropathy and was no longer able to work at jobs requiring her to stand. Three companies hired her, and she subsequently lost those jobs because of her physical challenges. She was receiving public assistance at the time she filed bankruptcy and sought discharge for her student loans.
Court rules woman may find suitable employment
The court noted that the woman could work at a sedentary job and that she was hirable based on her success at attaining three jobs in one year, even though she did not keep them. Further, according to the court, the fact that Congress is considering legislation options that would make student loans dischargeable implies that the courts cannot currently discharge them under the present circumstances.
Bankruptcy may benefit student loan borrowers
If proposed legislation does succeed, bankruptcy courts are likely to see a large influx of filers seeking to discharge student loans. Right now, the primary benefit a person with student loans may achieve is relief from other debts that frees up income to make student loan payments.
Many people will end up filing for bankruptcy before the end of 2019, and research suggests many of those will come from the South. Mississippi has one of the highest divorce rates in the country, with 4.25 bankruptcies occurring for every 10,000 residents, compared to the national average of 2.5 for every 10,000.
Bankruptcy can help you get your finances back on track in the long run, but there is no guarantee a court will approve your bankruptcy in the first place. You have to set yourself up for success, and that requires ensuring you avoid these common mistakes too many Mississippi residents make right before filing.
1. Paying friends or family members
You may think you will do the right thing by paying back loved ones who loaned you money in the past. However, this looks incredibly suspicious to judges. It comes across like you want to conceal certain assets by giving them to other people. While it is a noble thought, you should delay paying back people until the court approves your bankruptcy filing.
2. Taking money out of your 401(k)
You may think it is a good idea to take funds out of your retirement accounts to pay off some creditors before filing. There are two reasons why you should avoid this. First, the bankruptcy code forbids favoring one creditor over another. Additionally, your retirement accounts are exempt from bankruptcy proceedings. Therefore, you do not have to worry about losing any funds in these accounts when you file.
3. Running up credit card debt
When bankruptcy is on the horizon, many people do not see the harm in making some extravagant purchases on their credit cards. For the most part, you cannot discharge debt racked up in the previous 90 days before filing. Therefore, you will still owe the money once the bankruptcy is over. Additionally, creditors can contest such purchases, and it could jeopardize your ability to get a bankruptcy in the first place.
Studies show finances as a strong catalyst for divorce in today’s society. For those in severe financial strains, bankruptcy may be a beneficial consideration.
However, both divorce and bankruptcy have specific protocols that can affect each other. It is important to understand the implications of bankruptcy during divorce.
Filing type matters
Whether filing a Chapter 7 or a Chapter 13 bankruptcy, filing as a couple or as a single party is an important consideration. A joint filing is usually beneficial for those who share a large number of assets or have certain high-value assets. On the other hand, if a couple shares minimal or smaller assets, an individual filing may be sufficient. However, both parties must understand what the bankruptcy filing means for them. In certain cases, if one party files for bankruptcy as an individual, the filing may alleviate that party’s responsibility for a debt, but it does not eliminate the debt completely. Therefore, the other party may still have to pay the debt.
The time at which the bankruptcy and divorce coincide play a strong party on either process; in fact, it can determine if either process is feasible. For example, if a couple is in the middle of a divorce, a bankruptcy must approve a request for bankruptcy. Should the party receive an approval, the divorce process must cease until the completion of the bankruptcy. In cases where a divorce decree is already in place, the bankruptcy process may require a modification to that decision, considering that the bankruptcy will alter the recipient’s income.
While these aspects play a major part in deciding if a bankruptcy during divorce is proper or feasible, they are not the only things to think about. Before embarking upon a bankruptcy, it is important to fully understand how it affects you and possibly those connected to you.
Despite its many benefits, bankruptcy, unfortunately, comes with a negative connotation, which may make you hesitant to file. You want to try to protect your reputation with both loved ones and future creditors. As you have explored other options, one you may have looked at is debt settlement.
Debt settlement services are very alluring because they promise to eliminate most of your debt, so you pay pennies on the dollar. They say they will talk to creditors and take care of everything for just a simple fee. Can you trust these services if you want to avoid bankruptcy?
The risk is high
The bad news is that in most cases, these promises are too good to be true. While there certainly are reputable debt settlement companies, most take advantage of your situation to put money in their pockets. You are more likely to go further into debt than to get out of it. Watch out for companies that do any of the following:
Even legitimate companies may only be able to do so much. Creditors may not be willing to work with them and do not have to agree to any negotiations. Your credit will take a bigger hit, and you may even find yourself facing a lawsuit.
Does this mean your only choice is to file for bankruptcy? Not necessarily. There may be other options that could work for you, such as credit counseling or debt consolidation. However, it is also important to remember that bankruptcy is not a bad route. It stops creditor harassment, protects certain assets, eliminates most debts and puts you back on the road to financial security.