The general rule is that you should file bankruptcy only when you owe more than what you earn. Therefore, in our first consult, most questions will be about your financial situations. We would go through a list of your outstanding debt, like how many credit cards you have, are you carrying a balance on the cards, are you just making minimum payments, and what are they used to pay. All of that will give us information about your finances.
If, after reviewing your finances, we think that you owe more than what you can afford to pay, then bankruptcy is the right next step for you. The next question is whether you have considered alternative options like getting a debt consolidation or taking out a second mortgage. We’ll explain to you that a Chapter 7 bankruptcy will damage your credit score and should only be treated as a last resort. We also consider whether it is to the individual’s advantage to file a Chapter 13 bankruptcy. It doesn’t quite have the stigma of bankruptcy, and if they make their timely payments to the trustee over a period of time, the creditors cannot file any claims against them, which might work to the client’s advantage.
Another consideration for filing bankruptcy is if you’ve been contacted or sued by credit collector agencies. The burden to entertain multiple card creditors’ lawsuits can be overwhelming. Filing a Chapter 7 bankruptcy will get rid of that burden because the moment you file for bankruptcy, the law puts a “stay” or freezes all credit collection including lawsuits against you. This allows you a moment to take a breath and focus on what’s important in your life.
I’ve Decided To File For Bankruptcy, What Do I Need To Do Before I File?
Consider the impact on your credit score because it will stay on your credit report for seven years. After we advise you of all the mandatory disclosures required under bankruptcy law, and you still think that bankruptcy is the best option for you, we will advise you to do credit counseling, which is required by law. You have to do pre-petition credit counseling, and then we will tell our client to gather all of the documents. We need two years’ worth of tax returns, your credit reports, pay stubs, and all of your checking and saving account statements. We also require your credit card statements, your lease, and your car loan. After you gather all of the documents, we will prepare the petition for you.
What Is A Chapter 7 Bankruptcy? What Requirements Must Be Met In Order To File A Chapter 7 Bankruptcy?
Chapter 7 is a complete discharge of your debts, and it liquidates your assets. It is total bankruptcy. All of your non-exempt assets will be liquidated to pay off your debt, and after your debts are discharged, you will have a clean slate. To file for Chapter 7, you have to pass the means test. It will take a look into your income, expenses, family, or household size, and then it will determine whether you have enough disposable income to repay your debts. If you have enough disposable income to repay the debts, you will not be eligible for a Chapter 7. Instead, the court will tell you to file a Chapter 13.
What Assets Will I Be Able To Keep After Completing A Chapter 7 Bankruptcy?
You can keep all the assets that you requested to be exempted in your petition. Any items in your bankruptcy estate that are not exempt will be liquidated to repay your creditors. However, most, if not all, of our clients don’t have any non-exempt assets to be liquidated. It’s a no-asset Chapter 7 bankruptcy. The reason is that federal and state laws provide exemptions, and you must choose one of the other. An attorney will help decide whether federal or state exemptions are more advantageous.
As a rule of thumb, if you don’t own a house or real estate, taking the federal exemptions is better than the Commonwealth of Massachusetts’ exemptions. The “wildcard” federal exemption can be used for any type of property and you can exempt $1,325 plus $12,575 of any unused homestead exemption. This is more generous than the Massachusetts “wildcard” exemption, which is $1,000 plus up to $5,000 in unused car/household/tools of trade exemptions.
However, if you own a home and you have recorded a declaration of homestead, then typically it’s more advantageous for you to take the Massachusetts exemption than the federal one. Massachusetts allows you to declare as exempt the value of your principal residence, up to $500,000. But the federal homestead exemption is only $25,150.
For more information on Determining If Bankruptcy Is Appropriate, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (617) 742-2222 today.
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