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Avoid Bankruptcy

How many types of bankruptcy are there? The most widely held misconception about bankruptcy is that it’s the debtor’s version of the “get out of jail free” card in Monopoly. While most people know that bankruptcy affects your credit for 7 to 10 years, very few people know that it’s possible that you’ll have to pay back the debt anyway, even if you file a Chapter 7 “straight” bankruptcy. The formal definition of bankruptcy is “a proceeding in federal court in which an insolvent debtor’s assets are liquidated and the debtor is relieved of further liability.” On the other hand, the commonplace definition of bankruptcy is probably “the process of completely wiping out your debts for free or at little cost” In most cases, the latter definition may be appropriate, but in a small number of cases, it’s possible that even with bankruptcy, you’ll still have to pay back at least a portion of the debt.

So when is it possible that you’ll have to pay back your debts, at least partly? Here are the most common scenarios when you’ll get all the negatives of filing bankruptcy (severe credit impact for 7 to 10 years), but none of the benefits (you’ll still have to pay back at least part of the debt):avoiding bankruptcy may make sense

Look for various types of bankruptcy if you make more than the average person in your state

If this is the case, then it’s possible that you’ll be forced into a Chapter 13 bankruptcy plan (if you do not pass the “means test”). In a Chapter 13 bankruptcy, the court orders that you pay all your disposable income to a court appointed trustee, who in turn disburses payments to your creditors. Keep in mind that the court determines your disposable income by national and county statistics on average necessary expenses, not what you’re paying. So just because you’re paying a lot for a car doesn’t mean the court will approve it. There are cases when a judge ordered families to stop sending their children to private schools so they can have more money to pay back their creditors. Moreover, if you miss even one payment, the court may consider you to be in contempt and force you to pay the full debt amount back (although by all accounts this is rare). Chapter 13 bankruptcy is so difficult that only about one third of all cases are ever completed.

Let’s repeat that:

“Chapter 13 bankruptcy is so difficult that only about one third of all cases are ever completed.“

According to the US Bankruptcy Court: “28% Percent of the 398,096 cases in which debtors who sought protection under Chapter 13 in 2011, reported they had filed a bankruptcy petition during the previous 8 years.”

Even if you file for bankruptcy you have almost a 30% chance of not being about to avoid bankruptcy a second time within 8 years.

Bankruptcy may not be the best solution if you have assets

If you own a home or car with a lot of equity and it’s not exempt in your state, then it’s possible that the bankruptcy court will force you to sell them to generate sufficient cash to pay back your creditors. If have a good chunk of change invested and it’s not in an exempt account (again this varies by state), then it’s possible you’ll also be forced to liquidate it. If you have a second home or another vehicle (assuming you own both completely and it’s not exempt and has equity), then you may also be out of luck.

To learn about your state’s exemptions and how it relates to your individual scenario, contact a bankruptcy attorney licensed in your state. Fortunately, there are some safeguards to protect consumers from bankruptcy. In Illinois, for example, every resident is entitled to at least $7,500 of the value of their home, $1200 of the value of their vehicle, and $2,000 for anything that they want (known as the wildcard exemption). Also, these values double if you’re married (assuming the property is in both of your names).

What does this actually mean? Consider the following example:

Let’s say you have a house that’s worth $250,000, and it’s in both yours and your wife’s name. You still owe about $200,000 on your mortgage, and you decided to file Chapter 7 bankruptcy due to medical bills. In this example, you may be forced to sell your home, and with the proceeds you would pay back the mortgage company what you owe on the outstanding balance of the loan ($200,000), you’d pay yourself the Illinois real estate exemption ($15,000), and then you’d pay back your other creditors whatever was left, assuming you owe that much ($250K-200K-15K=$35,000). If this is the case, then you may want to consider finding another type of bankruptcy or a better alternative to it. Again, an attorney may be of some help in determining an appropriate path based on your situation.

Bankruptcy may not be the best solution if your creditors can prove you were fraudulent

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If your creditors can prove that you were fraudulent and never had any intention of paying them back, then you may want to find an alternative to bankruptcy. It’s possible you may end up with a bankruptcy filing on your credit report, and you will still owe a debt. The reason why is creditors can object to your filing, and if your bankruptcy judge agrees, your case can be dismissed. Of course this is something you would want to discuss with a bankruptcy attorney to determine whether you fit the bill of someone whose creditors can prove that you never intended to pay them back.

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By clicking "Get Free Quote", you agree that the phone number you are providing may be used to contact you by National Debt Relief (including autodialed and prerecorded calls, as well as text/SMS messages). Msg. and data rates apply, and your consent to such contact is not required for purchase.
 Trusted By Our Clients

"..."

Easy National Debt Relief Caller: Austin Transcribed WE 1/17/2021 Austin: Our call may be recorded. What led you to National Debt Relief and why did you choose National Debt Relief over a different company? CARA: Honestly, it was just kind of on a whim. I just saw a commercial, I think, and then looked it up. And we were just tired of living paycheck to paycheck and not feeling like we were getting anywhere with our debt. Austin: What were your thoughts and was wondering as far as like the enrollment process, what process or where are you at this point in the process? CARA: We are almost done. Well, they've paid off almost everything or we've paid off almost everything. We're working on our last credit card. So I think our last payment will be in December, so nearing the end. Austin: Do you remember the name of the negotiator? I'm sure you've probably worked with a couple of people, but what's the name of the negotiator that you worked with? CARA: Well, I didn't really, I guess really work one on one with like one negotiator. I don't think. We just got email saying, "This is where we're at with this. Do you agree?" you know, type situation. Austin: Do you feel that there's anything that maybe the negotiator did well or anything that they could have improved? CARA: No, I don't think so. Nope, I don't think so. We've been happy with everything so far. Austin: Have you seen any positive impacts from working with National Debt Relief, just to kind of notice any changes to your life? CARA: I mean, definitely less stress, and then we've just been able to be better about our spending and our budget and everything. It helped get us on track. Austin: How would you rate your experience with National Debt Relief on a scale of one to five, where five means you would recommend to friends and one means very dissatisfied? CARA: I'd say 5. Austin: Would it be okay if we shared your comments as a review on our public site with a first name and city only, they're for National Debt Relief and to help other consumers make good choices? CARA: Probably not. I live in a smaller area. If anybody were to hop on and say Cara from Beddington, they would probably know. Austin: We can definitely remove that 'cause we very much respect your privacy. So we can either remove the name and just do a ‘C’ or completely remove the city and just do like ‘Cara from the USA’ whatever -- mainly comments than identifying you, I guess would be important. CARA: Yeah, I don't care if you use like my name and just put USA. I just don't -- where I live, it's not a very big area. Austin: I can totally respect that. Not a problem at all. CARA: Yes, we are a little bit of ashamed of having to go this route, but it was what was best for our family at the time. Austin: Would you like us to email you a link to that review whenever it's published? CARA: Yeah, that'd be great. Austin: Our call may have been recorded.

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Cara Waterman
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