Should you File Bankkruptcy?
So you have reached the end of the road, your debts are piling up, and the phone is ringing off the hook. Whether it is to save your home, your marriage, or your sanity, the decision to file bankruptcy is a personal choice that carries some consequences. The biggest one is the effect a bankruptcy filing will have on your credit report. For starters, if you have reached the point of deciding to file bankruptcy, it is likely that your credit report has already taken a beating. It is more than likely that you have slow pays or late pays and collection accounts lurking on your credit report. Your credit cards are possibly maxed out and you may have judgements against you. In this case, filing for bankruptcy may be your only way to a fresh start.
Chapter 7 Means Test
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, also known as BAPCPA, makes it more difficult for some debtors to file for bankruptcy protection, Chapter 7 that is. The provisions of BAPCPA require that debtors pass a means test to qualify for a Chapter 7 bankruptcy protection. The bankruptcy means test takes into consideration Internal Revenue Service Guidelines for housing, utilities, groceries, and transportation. Additional expenses such as allowances for taxes, alimony, child support, unreimbursed medical expenses, child care, and involuntary retirement contributions are allowed. If a debtor does not pass the means test after all allowable expenses have been subtracted from the debtor's gross household income than he or she does not pass the means test and is likely ineligible for a Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
What does this mean? This means that a debtor will need to pay his or her debts through a Chapter 13 repayment plan. In a Chapter 13 repayment plan, a debtor is required to pay all of his or her disposable income into the plan for a period of 60 months. During this time a debtor cannot take on any new debt without the bankruptcy trustee's approval. Additionally, the debtor will likely encounter issues when looking for a place to rent as it shows up as an open bankruptcy on the credit report and most landlords and property management companies will not rent to anyone with an open bankruptcy.
If you are able to successfully complete your Chapter 13 bankruptcy and make all 60 payments to the trustee you will be granted a super discharge. This means that all of the unsecured portions of your debt will be discharged. Your priority debts such as those secured by property and auto loans, and income taxes due less than three years before filing your bankruptcy petition, will be paid through the plan over the 60 months.
Bankruptcy Effects on Your Credit Report
A Chapter 13 bankruptcy filing will stay on your credit report for 7 years from the filing date and a Chapter 7 bankruptcy will stay on your credit report for 10 years from the filing date. Some say that the presence of a Chapter 13 bankruptcy looks better on a credit report than a Chapter 7 but potentially any bankruptcy filing on a credit report does not look favorable when applying for credit.
About the author
Arlene Di Sessa will be partnering up with Gustan Cho Associates and will be a full service mortgage banker specializing in FHA Loans, VA Loans, USDA Loans, Conventional Loans, FHA 203k Loans, Reverse Mortgages, Jumbo Mortgages, Non-Conforming Loans, and Commercial Loans. Arlene Di Sessa’s specialty will be originating mortgage loans with no lender overlays. Arlene will be a direct full eagle mortgage banker. If you have any mortgage lending questions and like to go over case scenarios, feel free to contact Arlene Di Sessa at 530-813-0661.