- Can Bankruptcy Help?
- Filing For Bankruptcy is a Major Decision. Necessary For Some, Unnecessary For Others…
- Can Bankruptcy Help With Credit Card Debt?
- Can Bankruptcy Help With Collection Calls?
- Can Bankruptcy Help With Foreclosure?
- Can Bankruptcy Help My Spouse if I Don’t File?
- Can Bankruptcy Help With IRS and State Taxes?
- Can Bankruptcy Help With My Mortgage?
- Can Bankruptcy Help With My Mortgage Modification?
- Can Bankruptcy Help With My Car Payments?
- The Bottom Line
Can Bankruptcy Help?
Good question, with no easy pre-packaged answer. If you’re struggling with debt and looking for a way out, it’s in your best interest to at least talk to a professional. There are simply too many variables involved with the “can bankruptcy help?” question to get competent advice from the internet. With sites like this, you have the opportunity to begin your research and learn quite a lot, but ultimately, you’ll need a lawyer familiar with the laws of your state and the particularities of your local system.
Filing For Bankruptcy is a Major Decision. Necessary For Some, Unnecessary For Others…
You don’t just throw a bankruptcy in your shopping cart and head for the check out, it’s a major life decision that should not be entered into lightly. In some cases, bankruptcy can really help. Some families who are avoiding filing for bankruptcy shouldn’t be, they could use the help. In other situations, filing for bankruptcy would be a big mistake. One of the themes we try to emphasize on this forum is that no two bankruptcy cases are identical. If I’ve said it once, I’ve said it a thousand times, filing for bankruptcy is much more than just filling out some forms. Debt relief at the federal level is powerful, complicated and unforgiving. It can offer tremendous relief when done the right way (see: Filing Bankruptcy Without a Lawyer? Know The Risks). You pay a bankruptcy attorney to weigh all of the variables and to guide you through the process if you need it, or point you in another direction if you don’t. But I can hear the readers researching bankruptcy, at home, late at night, saying: “OK, we get that no two bankruptcy filings are the same, and that we need good representation, but can you answer the question please! Will bankruptcy help me?” Again, ultimately a question for a lawyer, not Google, but to begin your research, let’s roll up our sleeves and delve into some common debt scenarios and break it down.
Can Bankruptcy Help With Credit Card Debt?
A softball pitch to start. High interest credit card debt is one of the most common reasons folks file for bankruptcy. Bankruptcy can be a big help with your credit card bills. How? Assuming they were incurred in good faith, the bankruptcy discharge eliminates unsecured debts such as credit cards and medical bills. After you file for bankruptcy, your credit report should reflect zero balances on credit cards and lenders are permanently prevented from trying to collect. If they try, they can get in hot water with the bankruptcy judge.
Can Bankruptcy Help With Collection Calls?
Yes, we can check that box as well. Take some time to read up on the automatic stay, it’s a powerful injunction that stops all collection activity in its tracks the minute a bankruptcy case is filed. Once you seek bankruptcy protection, your creditors are prohibited from calling you. Even “friends” checking in on debts need to respect the bubble.
Can Bankruptcy Help With Foreclosure?
Not only does the automatic stay stop creditor phone calls, it stops all collection activity including lawsuits, garnishment and, yes, foreclosure. Bankruptcy and foreclosure is a complicated subject, but bankruptcy can help at least delay a foreclosure sale of your home.
Chapter 7 bankruptcy is a faster process than Chapter 13 bankruptcy. Most Chapter 7 cases are open and shut within a six-month window. When you file bankruptcy (7 or 13), a court-ordered injunction, known as the automatic stay, prevents the bank from foreclosing on your home. This is true even if you file bankruptcy the day before the foreclosure sale is set to take place. That’s the good news, now on to the not so good news. Even after a bankruptcy case has commenced, and the almighty stay is in place, lenders can file what is known as a motion for relief from stay. The motion for relief allows them to continue with the foreclosure process even while your bankruptcy case is live.
For a detailed breakdown of how bankruptcy can help stop foreclosure, see this post: Bankruptcy and Foreclosure: What You Need to Know.
Can Bankruptcy Help My Spouse if I Don’t File?
Potentially, yes it can. However the answer will hinge on whether your debts were incurred jointly or separately.Bankruptcy only eliminates the personal liability of the individual that actually files. If you and your spouse have incurred joint debt, she files and you don’t, you’ll still be on the hook for the debt. Conversely, if your spouse has incurred quite a bit of debt in her name and you haven’t, bankruptcy can help get you out of debt while preserving your credit. Check out this post for more information.
Can Bankruptcy Help With IRS and State Taxes?
Yes, but only in limited circumstances. If your taxes have been due for at least three years and your returns were filed more than two years ago, your taxes are likely dischargeable in bankruptcy. If you don’t meet this criteria, you’re stuck with your tax debts even if you file bankruptcy. Keep in mind, your taxes are due in April of the next tax year. 2012 taxes aren’t technically due until April of 2013. The three year time period starts running from the due date. assuming no extensions have been filed, your 2012 taxes become dischargeable in April of 2016. The IRS wants to make sure they have a number of years to take a good crack at you before you’re allowed to wipe out the tax debts in bankruptcy. For more information, see this post: Tax Debts and Bankruptcy.
Can Bankruptcy Help With My Mortgage?
Yes and No. On the one hand, filing for chapter 13 bankruptcy can help you save a home from foreclosure by forcing your lender to take past due mortgage payments in small increments over a 3-5 year period rather than forcing you to pay back what you owe in a lump sum right away. The concept is explained well in this post: Can Bankruptcy Save My Home?
The all too common scenario unfolds a lot like this: a consumer falls behind on their mortgage and starts to get calls and letters from their lender. They then try to negotiate a modification or payment plan to get caught up. Unfortunately, in most cases the mortgage modification attempt fails after many months of haggling with “loss mitigation” bureaucrats or the bank demanding the arrearages in one lump sum. The consumer can’t afford to come current on their entire past due balance and eventually they lose their home to foreclosure. Chapter 13 bankruptcy changes the playing field by forcing lenders to accept past due mortgage payments in small increments over a period of 3-5 years which gives many families a realistic chance of getting caught up and saving their home. The past due mortgage payments are then added to the existing mortgage payment going forward.
Although the ability to catch up on past due mortgage payments can be a big help for many families who are struggling to stay in their homes, it is important to remember that filing for bankruptcy doesn’t give you a free house. You’ll always need to maintain normal monthly mortgage payments if you wish to keep your home. Failure to pay the mortgage on time will almost always result in the lender seeking permission to foreclose. If, on the other hand, you’re one of the millions of Americans who find themselves underwater on their home values, and your mortgage has become a financial albatross that you can no longer afford to carry, filing for bankruptcy gives you the right to surrender the property and walk away with no liability for a deficiency judgment.
Can Bankruptcy Help With My Mortgage Modification?
Well, maybe not in exactly the way you might be envisioning. Your bankruptcy judge won’t get on the phone and take Bank of America to task for giving you the runaround for a year or more. However, the bankruptcy laws do allow junior liens to be stripped from your primary residence in a Chapter 13 bankruptcy. What does this mean? First off, the rule only applies to your primary residence, investment property need not apply. If you find yourself owing more than your home is worth based on the balance of your first mortgage, the second and third mortgages can actually be stripped or removed from your house. You’ll need a current appraisal to prove property value. Once this has been accomplished, your bankruptcy lawyer will file a lawsuit in the bankruptcy court seeking to have the liens removed. If the appraisal is credible, it is unlikely that the mortgage company will object and you’ll be left with a reduced housing payment.
Can Bankruptcy Help With My Car Payments?
Another yes. The same principle applies in the car context as it does in the mortgage context. First, you have the option of surrendering a car you can no longer afford and walking away. This is true regardless of whether you are currently leasing or financed the purchase of the car. If you wish to keep the car and lower payments, filing for Chapter 13 bankruptcy can do that as well. Just as second and third mortgage liens can be stripped from your home, the balance of a car loan can be reduced or “crammed down” to match the current market value of your car. In the cram down scenario, there is no requirement that there be a junior lien before your primary loan can be chopped, however, loans made within 910 days of filing are not eligible for cram down. The cram down option is a powerful tool for many consumers because, as we all know, the value of a car starts to go down the minute you drive it off the lot. For more information, see this post: Can Chapter 13 Bankruptcy Lower My Car Payments?
The Bottom Line
Bankruptcy is a powerful consumer protection tool and, under the right circumstances, it can be a big help. Having said that, no two bankruptcy cases are identical. Filing bankruptcy in Texas is different than filing bankruptcy in Ohio. Call a lawyer if you need real answers.
Walter Metzen is a Board Certified Specialist in Consumer Bankruptcy with over 28 years of experience. He’s represented more than 20,000 bankruptcy clients in and around Detroit where his firm is located. View his profile here.