While Chapter 13 is effective for debt relief, many worry about how this filing method may negatively affect their credit scores. Some even have the misconception that their bankruptcy filing will eliminate their credit entirely.

Fortunately, the impact of Chapter 13 isn’t nearly that dire, but it often does, initially, have a negative impact on credit reports. In this blog, we’ll discuss how Chapter 13 usually affects credit scores, and we’ll give you actionable tips to begin rebuilding your credit.

If you have additional questions regarding Chapter 13 or Chapter 7 bankruptcy, contact the attorneys at Sawin & Shea, LLC. We have years of experience assisting Indiana residents with the bankruptcy process, and we offer FREE consultations.

What Is a Chapter 13 Bankruptcy Filing?

Chapter 13 is a personal form of bankruptcy, as opposed to Chapter 11 “reorganization” bankruptcy, which is generally used for businesses and other entities. While different from Chapter 11, Chapter 13 is similar in the sense that it involves reorganizing and consolidating debts.

This filing method is referred to as “the wage earner’s plan” because filers repay some of their debt balances with their regular income. Rather than paying off all of their financial obligations at once, those who file Chapter 13 pay into a plan over a three-to-five-year period.

You first initiate the Chapter 13 bankruptcy legal process by filing a petition in court. The court will then order a bankruptcy stay — also called an automatic stay — that prohibits creditors and lenders from collecting what you owe.

After you file, you create a repayment plan based on your income and assets. This plan states that you’re committed to paying back something to creditors in monthly installments, and you detail the minimum amount you’ll pay as well as the duration of the plan.

Chapter 13 Bankruptcy Discharge

Once you complete paying off your repayment plan over three to five years, the court will discharge your eligible debts.

Common types of dischargeable debt include:

• Credit card debt
• Medical debt
• Judgements
• Utility bills
• Back rent
• Personal loans
• Repossession balances

While Chapter 13 helps you repay certain debts and discharge remaining balances, not all forms of debt are dischargeable.

You will not be able to discharge:

• Family and child support
• Most student loans
• Most local, state, and federal taxes

How Does Filing Bankruptcy Impact Your Standing with Credit Bureaus?

Those considering filing for Chapter 13 have likely suffered from exorbitant amounts of debt from credit cards, medical bills, or personal loans. After all, if you don’t have debt, why would you be interested in filing bankruptcy in the first place?

Overwhelming debt can impair your credit reports from the major credit bureaus — Equifax, Experian, and TransUnion. This is especially the case if you’re behind on your credit payments.

Fortunately, if you already suffer from a poor credit score, your bankruptcy filing will likely not seriously impact your score. It could even improve your credit score.

On the other hand, those who have good credit scores may see their scores shrink when filing, and this risk increases with a greater score. For instance, someone with a 500 FICO score. will likely not suffer from a notably reduced score, but someone with a FICO score of 750 certainly will.

Fortunately, you can rebuild your credit score after you file for Chapter 13.

Do Creditors Prefer Chapter 13 Bankruptcy?

While Chapter 13 can negatively affect your credit report, lenders and creditors usually favor those who filed Chapter 13 compared to those who filed Chapter 7 bankruptcy.

The reason why creditors prefer you file Chapter 13 is because Chapter 7 bankruptcy discharges unsecured debts after the trustee liquidates nonexempt assets. This means that unsecured creditors, such as credit card companies, won’t receive what the debtor owes. Instead, the creditors will consider the unpaid balances as charge-offs, meaning losses.

With Chapter 13, you usually repay at least a portion of your unsecured debts through your three-to-five-year repayment plan. Your prospective creditors have a higher regard for those who file this method because it’s more likely that you’ll repay your debts going forward. Chapter 13 shows that you’re more likely to use your credit responsibly and pay back your debts to creditors.

That said, Chapter 13 is not for everyone, and some of those struggling with overwhelming consumer debt should instead consider Chapter 7 bankruptcy.

How Long Will Chapter 13 or Chapter 7 Bankruptcy Remain On My Credit Report?

Many of those considering bankruptcy worry about how long the filing will remain on their credit reports. The duration you can expect will depend on whether you file for Chapter 13 or Chapter 7.

Chapter 7 bankruptcy remains on your credit report for up to ten years and you cannot file another Chapter 7 for eight years after discharge. Chapter 13, on the other hand, will remain on your credit report for up to seven years after you file bankruptcy.

One critical note is that the seven years begins on your filing date and includes the period in which you make regular payments. This means that you can expect this negative information to be wiped from your credit report two to four years after your Chapter 13 bankruptcy discharge. If it takes you three years to pay off your plan, the bankruptcy will remain on your credit report and affect your FICO score for up to four years. If it takes you five years, the bankruptcy will remain for up to two years after the discharge.

Additionally, if you pay off your plan within one or two years, the bankruptcy will remain on your credit report for a total of seven years.

Can I Take on New Credit During My Chapter 13 Bankruptcy Filing?

Typically, you’re not allowed to secure new credit after you’ve filed bankruptcy. You’ll need to first finish your repayment plan. The reason why is that taking on new debt suggests to the bankruptcy court that you may be unable to maintain your plan for the full period. If you can’t fulfill your financial obligations per your bankruptcy petition, the court will dismiss your bankruptcy case, meaning you won’t be able to discharge your remaining debts.

There are some situations in which you will need to incur additional debt while going through the bankruptcy procedure, such as unexpected vehicle or home repairs. In these cases, it’s critical to consult with a Chapter 13 bankruptcy attorney to assist you. A bankruptcy lawyer can help you find a creditor who’s willing to work with you, and they’ll file a motion to receive permission from the court and the bankruptcy trustee.

Rebuilding Your Credit Score After Chapter 13

After your discharge, the three main credit bureaus will send you copies of your credit report. With this information in hand, it’s time to rebuild and repair your credit score.

Unfortunately, you’ll likely need to pay higher credit interest rates for a few years after your filing, but once you strengthen your credit report, you’ll be able to secure lower rates. Here are some effective ways to improve your credit score moving forward.

Avoid Accumulating Too Much Debt

Wiping your unsecured debts clean doesn’t mean you should return to old habits. It’s best to refrain from taking on too much debt in the first few years following your discharge. This is especially important while your interest rates remain high. Accumulating too much debt may escalate to high credit utilization and challenging credit card balances.

Obtain a Secured Credit Card

You may struggle to find creditors who are willing to lend to you while you repair your credit score. Fortunately, you can obtain a secured card that includes collateral. Credit card companies often feature secured cards for people with little to no credit history or poor credit. You’ll need to pay a minimum fee — usually around $200 — that will serve as collateral, but credit card companies often repay these fees once debtors remain in good standing for an extended period.

Another great option is a credit builder loan, which is intended to help those with poor credit or limited credit histories. While larger lenders usually don’t offer these loans, you may be able to find one through a community bank or credit union.

Make On-Time Payments

Opening up a new line of credit is essential for repairing your credit score, but you need to ensure that you always make on-time payments. Otherwise, you’ll receive negative marks on your credit report. Consider setting regular reminders to make on-time payments or enroll in autopay.

Add a Co-Signer To a Loan

If your recent bankruptcy is making it challenging to secure a loan, such as an auto loan, consider adding a co-signer. Having someone else co-sign will increase your likelihood of receiving approval on a loan or a new line of credit with a lower interest rate.

Further, you can add an authorized user to your credit card account to accelerate the process of strengthening your credit report. One critical note is that you should only add a user if you trust them. If they rack up a high balance and make late payments, they may actually hurt your credit report.

Become an Authorized User

In addition to adding someone to your credit card account, another person can add you to their account. That way, their on-time payments will appear on your credit report. Only become a user on someone else’s card if they make on-time payments and keep their balances relatively low. Otherwise, their credit usage could negatively affect both of your credit reports.

Maintain Healthy Credit Utilization

While it’s important to use credit cards, loans, and other financial instruments to raise your credit score, you need to ensure your credit utilization rate remains below 30%. Your credit utilization rate refers to the sum of your balances compared to your total available credit. For instance, if you have a total of $40,000 worth of credit and owe credit card companies $10,000, your credit utilization rate is 25%.

Contact a Chapter 13 Bankruptcy Attorney Today

Bankruptcy laws are complicated, and it’s essential to ensure you file correctly.

Fortunately, you don’t need to go through your bankruptcy case alone — you can contact the seasoned Chapter 13 bankruptcy lawyers at Sawin & Shea, LLC by calling us at 317-759-1483. In addition to helping you file bankruptcy, we’ll provide financial guidance so you can begin restoring your finances and improving your credit score. 

The post Does Chapter 13 Wipe All of Your Credit? appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.

This debt relief option is the best choice for numerous indebted individuals, and it shouldn’t merely be considered a last resort — It’s a proactive solution that can help you regain financial stability.

Although there’s no reason to feel ashamed for filing, many hold negative beliefs about personal bankruptcy, and they make wrongful assumptions about those who file.

Due to the negative perceptions of bankruptcy, many professionals worry about whether bankruptcy affects their ability to retain professional licenses and certifications. They also wonder how their filing may impact future employment opportunities and their standing with employers.

In this blog, we discuss how Chapter 7 and Chapter 13 bankruptcy, when filed, can affect professional licenses, certifications, your job, and prospective employment opportunities.

How Will Filing Bankruptcy Impact My Professional License?

The short answer is that filing bankruptcy should NOT impact your current professional licenses or certifications. Federal law protects those who file against discrimination, and this includes having your license revoked.

Bankruptcy Code Section 525(a) states that:

“…a governmental unit may not deny, revoke, suspend, or refuse a license, permit, charter, franchise, or other similar grant to…a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act.”

Your bankruptcy alone shouldn’t affect your professional license, but you may need to report that you declared bankruptcy, depending on your type of license or certification. Ensure you research whether you’re obligated to report your bankruptcy before filing or reach out to an experienced bankruptcy attorney to assist you.

Will Bankruptcy Affect My Ability to Obtain a New License or Certification?

If you file bankruptcy, it could determine your ability to obtain a new professional license. Bankruptcy alone shouldn’t determine whether or not you get or lose the license, but the licensing board or state board will evaluate you holistically. During that process, they may consider your finances, missed payments, and credit, especially if your career requires you to handle money.

Again, bankruptcy shouldn’t be the sole factor in determining whether an applicant can obtain a professional license, but a poor credit report can negatively affect an applicant’s chances. An applicant’s bankruptcy and credit check may also reveal serious issues that may impact their license status, such as fraud.

Professional Licenses and Loan Defaults

While a bankruptcy filing alone shouldn’t ruin your chances of obtaining a license, defaulting on certain loans and debts can. In fact, defaulting may even jeopardize your current license status.

Types of loan and debt defaults that may affect your professional license include:

• Child support
• Student loans
• Alimony

Can My Bankruptcy Filing Affect My Employment?

It is against the law for an employer to fire you on the basis of your bankruptcy, and this includes both government and private employers. Additionally, the Bankruptcy Code states that it’s illegal for employers to demote you or reduce your pay or responsibilities because of your bankruptcy.

If you suspect that you’ve been fired or demoted due to your bankruptcy, you should contact a labor attorney to assist you, as there’s no excuse for workplace discrimination.

While bankruptcy laws prohibit an employer from treating an employee differently, your bankruptcy case may still impact your employment, depending on your profession.

For example, lawyers and real estate agents may be prohibited from holding money or assets on behalf of clients while undergoing bankruptcy and fulfilling financial obligations. That said, these limitations are temporary.

Additionally, bankruptcy may indicate other financial problems that can impact your status with your employer, such as fraud or defaulting on certain loans.

Your employer cannot reduce your pay or fire you because you filed bankruptcy, but they can fire you for fraud, defaulting, and bad credit, especially if you’re responsible for handling money.

Will My Current Employer Find Out About My Bankruptcy?

While you can rest assured that you won’t be fired if you file for bankruptcy, you may still worry that your employer and co-workers will lose respect for you. Again, there’s no reason to feel ashamed if you file for bankruptcy, but it’s understandable to care what others think.

Fortunately, it’s unlikely that your office or other workplace will learn that you filed bankruptcy. You’re under no obligation to disclose your bankruptcy to your company. In most cases, they will not find out.

That said, there are some situations in which your office could learn of your bankruptcy. For example, if your salary payments were garnished to repay creditors, your bankruptcy will halt the garnishment. Your employer will be notified of the bankruptcy in order to stop the wage garnishment.

Additionally, your employer could find out if they run a credit check on you, but they need to receive your permission to check your credit. Further, your employer could require you to receive a new security clearance, and they will likely discover that you filed bankruptcy during that process.

Can Bankruptcy Affect My Future Job Prospects?

Filing bankruptcy can impact your employment opportunities. Bankruptcy laws state that public employers cannot take your bankruptcy into consideration during the hiring process. As we’ve discussed, there may be other reasons related to your bankruptcy that could impact your job application with a public employer — such as defaulting on student loan debt — but the bankruptcy alone shouldn’t compromise your application.

While public employers cannot consider bankruptcy filings when deciding whether to hire you, the law does not apply to private employers. If you apply for a job with a private company, the prospective employer may decide to deny you due to your bankruptcy. Unfortunately, this can cause you to lose potential opportunities, especially if your career involves finances or accounting.

Some of the ways in which private employers discover bankruptcy filings include security clearance background checks and credit checks. Additionally, they can search for your bankruptcy since it’s part of the public record. If your job application requires you to undergo a background or credit check, it’s best to inform the company that you’ve filed.

File Bankruptcy with the Help of an Experienced Lawyer

If you’re considering filing for bankruptcy, it’s best to work with an attorney to help you with your case. For Chapter 13 and Chapter 7 attorneys in Indiana, contact Sawin & Shea, LLC.

Our attorneys have years of experience assisting Indiana professionals through the bankruptcy process, and we can help you get your finances back on track.You can schedule a FREE case consultation today online or by calling 317-759-1483.

The post What Is the Impact of Bankruptcy on Professional Licenses and Certifications? appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.

Fortunately, we’re here to answer frequently asked questions regarding reaffirmation agreements and reaffirmed debt. In this blog, you’ll learn about whether you can reaffirm your debt in Ch. 13, the differences between Ch. 7 and Ch. 13, and how to enter into a reaffirmation agreement.

Have additional questions regarding bankruptcy or reaffirming secured debts? Here at Sawin & Shea, we have numerous years of experience practicing bankruptcy law and can answer your questions. You can get a free consultation with an attorney on our team to get started with your case.

What Is a Reaffirmation Agreement?

A reaffirmation agreement is a document that re-obligates a debtor to repay a particular debt, such as a car loan, mortgage, or other loan type. It basically serves as a legally binding promise that the person filing for bankruptcy will resume making payments in full and on time to the creditor.

Entering a reaffirmation agreement is a way that debtors in a Chapter 7 bankruptcy keep collateral attached to secured debt like houses or cars. The agreement makes you responsible for the debt again like the bankruptcy never happened for that debt. All of the original terms of the loan are back in force, including the creditor’s right to repossess the collateral if you get behind on payments in the future.

Reaffirming Debt in Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves consolidating your different forms of debt into a three-to-five-year repayment plan. There is a Chapter 13 Plan that controls how various debts are treated. While you can certainly keep secured debt and things like houses and cars in a Chapter 13, there are no reaffirmation agreements. The Plan controls how those debts are handled. 

A Chapter 13 is a great way to help people get caught up on secured debt that they are behind on. We can help people re-organize secured debt in various ways to help people stop repossessions or foreclosure and get back on track with payments to keep those items. A Chapter 13 is a way people can deal with debts and keep the things you need to successfully move forward.

What’s the Difference Between Chapter 13 and Chapter 7 Bankruptcy?

Unlike Ch. 13, Ch. 7 involves the liquidation of personal property and assets to repay a portion of your debt. Most of those who file Chapter 7 are not at risk of a house or vehicle repossession, but it is possible.

Chapter 7 is a great option for those who struggle to pay their loan bills and interest and who have minimal assets. This type of bankruptcy case will help you eliminate debts with high interest rates.

Who Is Eligible for Chapter 7 Bankruptcy?

To qualify for Chapter 7 bankruptcy, your average household earnings need to be below Indiana’s median income. Otherwise, you’ll need to undergo a means test. This test will consider details from your income, property, as well as your expenses to evaluate whether you qualify. There are sample means tests available online, but these tests are usually not entirely accurate. It’s best to work with a bankruptcy attorney to determine whether you’re eligible for Chapter 7 bankruptcy.

Chapter 7 Bankruptcy Process

The first step you’ll need to take to file bankruptcy is evaluate your current financial situation. While you’re not required to consult with a bankruptcy attorney, an experienced attorney can help you choose your best course of action in overcoming debt with interest, and they’ll ensure you file correctly with all necessary documentation.

Before filing, you’ll need to undergo credit counseling. You are required to complete credit counseling with an approved agency within 180 days of filing.

Once you prepare all necessary forms and complete credit counseling, you or your lawyer will file your bankruptcy petition.

Bankruptcy Court Process

After filing, the court handling your bankruptcy case will put an automatic stay that protects you from any collection activity. This means that a lender or creditor cannot recover the money you owe or take legal action against you. For instance, a mortgage lender cannot foreclose on your home while you undergo the bankruptcy process.

Next, the judge will assign a bankruptcy trustee to your case. The trustee is responsible for setting up the 341 meeting, known as the Meeting of Creditors. During this meeting, the trustee and attending creditors will ask you questions under oath regarding your financial situation and the validity of your petition. In addition to setting up the 341 meeting, they will sell your non-exempt personal property to repay a portion of your total debt.

Another important part of undergoing this type of bankruptcy is an obligatory financial management course. You are required to complete this course within 45 days of your 341 meeting to discharge your debt.

After completing your financial management course, your eligible unsecured debts will be discharged in bankruptcy. Common types of dischargeable debts include credit card debt, personal loans, and unpaid medical bills.

The bankruptcy discharge will not get rid of a creditor’s security interest, meaning collateral is still attached to the loan. Common types of secured debt include a mortgage, car loans, and boat loans. Those wishing to hold onto that collateral — such as a house or vehicle — need to reaffirm their mortgage or other debt through a written agreement.

Chapter 7 Reaffirmation Agreement

Entering a reaffirmation agreement is ideal for those who want to keep collateral through the Chapter 7 process. The creditor will not repossess your property because you enter a legally binding agreement stating that you’ll repay your collateral loans, such as a house mortgage or car loan. Once you sign this deal, your reaffirmation is that you will resume or continue paying on-time monthly payments to your mortgage holder or another lender.

In addition to protecting certain assets or collateral, this reaffirmation accord can help you with your credit as you undergo the bankruptcy process. Chapter 7 bankruptcy can negatively impact your credit score and will remain on your credit report for ten years after filing. When you enter the reaffirmation process, you can remain in good standing with some of your lenders, thus helping your score.

Mortgage lenders and other creditors are typically willing to enter reaffirmation agreements, but you must meet certain qualifications, and the bankruptcy court judge must approve. The judge may reject the reaffirmation contract if they determine that it’s unlikely you will actually make full debt payments to repay what you owe the lender for the mortgage.

In addition to the judge’s approval, the borrower must meet these requirements for reaffirmation:

• Debtors must sign the reaffirmation agreement within 60 days of the First 341 meeting.
• Both parties, the debtor and the creditor, must enter the reaffirmation contract and reaffirm the debt voluntarily.
• The debtor must file a reaffirmation statement in court stating they can pay off the loan without incurring additional financial harm.
• The creditor must allow the debtor to rescind the reaffirmation contract within 60 days of signing.

Can You Cancel a Reaffirmation Agreement?

Once you sign a reaffirmation agreement, you have sixty days to cancel it. Additionally, you can cancel the agreement if the bankruptcy court has yet to discharge your debts.

In order to cancel the agreement before the bankruptcy discharge or within sixty days, you or your bankruptcy lawyer will need to file a notice of rescission in court, and you’ll need to inform the lender.

A common reason why debtors cancel these agreements is due to a change in their financial situation. For instance, if you lose a source of income, you may realize that you can no longer afford to make monthly payments on your mortgage or other loan.

Another reason why you may want to cancel reaffirming your debt is if your property has depreciated in some way. If you total your vehicle, you may no longer take issue with having it repossessed in the liquidation process.

Finally, you may no longer want to reaffirm your debt if a third party wishes to purchase your property.

Your lender also has the right to cancel within sixty days of the signing. It’s highly unlikely that the lender will do this unless they discover new information that may impact your ability to repay your loan.

Contact a Bankruptcy Attorney

As a general rule, bankruptcy cases are often confusing and overwhelming, especially for those who wish to reaffirm a debt. Fortunately, you don’t need to go through your case alone — you can have a bankruptcy lawyer help you every step of the way, from payments to discharge.

An experienced bankruptcy attorney can ensure that you choose the best type of filing for your personal financial situation. The attorney will also help you file correctly and ensure you reach a favorable reaffirmation agreement with your lenders. They can also negotiate with lenders on your behalf and protect you against creditor harassment.

If you need assistance with your bankruptcy case in Indiana, contact Sawin & Shea LLC. We have 45 years of combined legal experience helping bankruptcy clients, and you can rest assured that we’ll handle your bankruptcy case payments with the utmost attention and care.

You can schedule a consultation with an attorney on the team today at no cost by calling 317-759-1483, or you can contact us online here.

The post Can You Reaffirm a Debt in Chapter 13? appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.

Can You File for Bankruptcy Due to Gambling Debt?

The short answer is, yes, you can. If you have accrued substantial gambling debt that you are unable to repay, declaring bankruptcy may seem like your only option. However, not all types of bankruptcy allow for the full discharge of gambling debt. When it comes to gambling losses, Chapter 13 bankruptcy is often the most effective path to find financial relief.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows people with regular income to develop debt repayment plans to discharge their eligible debts over 3 to 5 years. This is different from Chapter 7 bankruptcy which liquidates assets to pay back debts but does not involve a structured repayment plan.

A major benefit of Chapter 13 bankruptcy is that it allows the filer to catch up on missed mortgage, car loan, and other secured debt payments by incorporating them into the repayment plan. This helps prevent repossession or foreclosure.

Chapter 13 Eligibility

To qualify for Chapter 13 bankruptcy and its benefits, you must have regular income from employment or other consistent sources. Income limits vary by state and household size but are generally higher than those imposed on Chapter 7 bankruptcy.

Your repayment plan obligations are calculated based on disposable monthly income and living expenses. With no disposable income, you may still qualify for Chapter 13 bankruptcy with low or no plan payments.

Why Should You File for Bankruptcy From Gambling?

Embarrassed of gambling and have to file bankruptcy? You should not let this shame hold you back. Filing for bankruptcy is a chance for you to regain control over your life and your gambling addiction. 

Chapter 13 bankruptcy will give you the time you need to pay off your debts, without the stress of possible liens being filed against your property. Being free from the immediate monetary stress may also give you the breathing room to truly tackle your addiction.

What Are Non-Dischargeable Gambling Debts?

Debts that have accrued within 90 days of filing and which are over $500 are usually considered non-dischargeable. This is because there is the presumption that the gambling bets may have been placed in bad faith–with the assumption that bankruptcy would soon be filed and they would not need to pay back any bets that failed. While this may not have been your intention, these debts can be considered fraudulent. 

However, non-dischargeable debts do not preclude you from filing for Chapter 13 bankruptcy. Instead, you will need to propose a plan to pay off these debts over time. Unlike dischargeable debt, you will need to pay the full dollar amount of the debt. Typically, you will have three to five years to pay off this type of debt. 

How Can a Bankruptcy Lawyer Help?

Bankruptcy can be a complex process to navigate on your own. A bankruptcy lawyer can help you with their experience of bankruptcy from gambling laws. They will handle paperwork, answer questions, help you build a repayment plan, and help you understand whether your gambling debts meet the requirements for dischargement. Additionally, they may be able to help with: the stoppage of harassing phone calls from creditors, repossessions, foreclosures, and more.

If you need an experienced team of experienced bankruptcy lawyers in Indiana, turn to Sawin & Shea. Their office is located in Indianapolis, Indiana, and they are proud to serve people throughout the state. To speak to an associate to schedule a consultation or answer any questions, call 317-759-1483 today.

The post Chapter 13 and Gambling Debt appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.

When you are overwhelmed by debt, you may start to wonder if declaring bankruptcy or pursuing debt consolidation is the better option. Both strategies aim to provide relief, but they work very differently. Understanding the key aspects of each can help you determine what is better, bankruptcy or debt consolidation, for your situation.

The Pros and Cons of Debt Consolidation vs Bankruptcy

With debt consolidation and bankruptcy, each path comes with its own set of advantages and drawbacks. Understanding the pros and cons of debt consolidation versus bankruptcy is crucial for making informed decisions about one’s financial future. Below are some of the key aspects of both approaches, offering insights to help you navigate the terrain of debt relief and choose the strategy that aligns best with your unique circumstances.

How Bankruptcy Works 

There are two main types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7, also called liquidation bankruptcy, wipes out many of your debts completely. The court sells off your nonexempt assets and uses the proceeds to pay your creditors. The remaining qualifying debts are discharged, meaning you are no longer responsible for paying them back.

Chapter 13 bankruptcy sets up a 3-5 year repayment plan to pay back a portion of what you owe. Your assets are protected while you make monthly payments to creditors through the court. At the end of the plan, any unpaid balances on the qualifying debts are discharged.

The Pros 

Bankruptcy can stop foreclosures, repossessions, lawsuits, wage garnishment, utility shut-offs, and debt collection activities through its automatic stay provision. Filing for bankruptcy can also discharge debts related to evictions, medical, and credit cards.. For those with assets like a home, bankruptcy may allow you to keep them while discharging other debts. Bankruptcy provides a fresh start relatively quickly – usually within a few months for Chapter 7.

The Cons 

Bankruptcy has an effect on your credit and remains on your report for 7-10 years depending on the type. You may have to liquidate some assets and non-exempt property. Any debts not discharged, like student loans, remain. The court reviews your finances to prevent fraud.

How Debt Consolidation Works

Debt consolidation combines multiple debts into one new loan or credit line. Common approaches include balance transfer credit cards, debt consolidation loans, home equity loans, and lines of credit. The goal is to secure a lower interest rate to reduce your overall repayment costs. You then work on paying off the new consolidated debt through a single monthly payment.

The Pros 

Consolidation loans often have fixed rates and predictable repayment schedules spanning a few years. Your credit rating is impacted less severely than bankruptcy. Debt consolidation works best for those with good credit and discipline to keep making payments. It simplifies finances with just one payment versus many debts.

Further, obtaining a 2nd mortgage to consolidate credit card debts not only attaches that debt to your house permanently, ii also leaves people open to using the cards to get themselves back into the same position down the road. I have seen it many times in my practice. Clients used up the equity that they worked for years to achieve in their home, only to end up with a new load of credit card debt that they cannot afford. 

The Cons

You must still repay the full debt amount, including interest and fees. Missed payments can worsen your financial situation quickly. The debts themselves remain open and active on your credit history. Poor credit scores disqualify many people from the best rates on consolidation loans. Equity loans put your home at risk as collateral.

Key Differences Summarized

Bankruptcy

• Overall Approach: Eliminates or reduces debts through the court process
• Impact on Credit: Very negative, 7-10 years
• Assets at Risk: Possibly liquidated
• Payments: Sometimes required
• Total Debt Relief: Eliminates eligible debt
• Duration: A few months to a few years

Debt Consolidation

• Overall Approach: Combines debts into a new loan with better terms
• Impact on Credit: Less severe if payments are made
• Assets at Risk: Potentially put up as collateral
• Ongoing Payments: Always required
• Total Debt Relief: Must still repay in full eventually
• Duration: A few years typically

Evaluate Your Personal Situation

Whether bankruptcy or debt consolidation offers the better approach depends entirely on your specific circumstances.

Important factors to weigh include:

• The total amount of debt owed
• Your current and future income potential 
• Eligible assets that could be liquidated or put up as collateral
• Other financial obligations like alimony, child support, or student loans
• Your credit score and ability to qualify for low interest rates
• How soon you need relief from collections and creditors

Ideally, you should meet with a bankruptcy attorney to evaluate all your debt relief options before deciding on bankruptcy or debt consolidation. It pays to understand the pros, cons, and differences between these two common strategies. An attorney can help determine if your best path forward is discharging all eligible debts through bankruptcy or steadily repaying consolidated debt on better terms.

Trust the Team at Sawin & Shea, LLC

If you still have questions about bankruptcy or debt consolidation, please contact the experienced team at Sawin & Shea, LLC. We have been helping people navigate the bankruptcy process for years. Schedule a free consultation today at 317-759-1483. 

The post Is It Better To Declare Bankruptcy or Debt Consolidation? appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.

What is Chapter 13 Bankruptcy? 

Chapter 13 bankruptcy provides a structured repayment plan, allowing individuals with regular income to reorganize their debts and retain their assets. Debtors with a steady income create a court-approved repayment plan spanning three to five years. This document outlines a repayment plan that considers their debt load, current resources, and monthly living costs. This repayment plan can include your vehicle, an essential asset for many individuals and families. 

While Chapter 13 offers the opportunity to catch up on missed payments and restructure debts, it also has specific implications for existing car loans.

The debtor works closely with a bankruptcy trustee to create a manageable repayment plan, and upon successful completion, any remaining eligible debts are typically discharged. Chapter 13 bankruptcy offers a chance for individuals to regain control of their financial situation, protect their assets, and work toward a more stable economic future.

How Does Chapter 13 Bankruptcy and Auto Loans Work?

Protection and Retention of Your Vehicle: One of the critical advantages of filing for Chapter 13 bankruptcy is the opportunity to retain your assets, including your car. The court-approved repayment plan lets you catch up on missed payments and maintain vehicle possession. This option provides much-needed stability during the repayment plan, especially if your car is crucial for daily activities such as commuting to work or transporting family members.

Repayment Terms and Interest Rates: Chapter 13 allows debt restructuring, including car loans. As part of the repayment plan, you may negotiate more favorable terms for your auto loan, such as reduced interest rates or an extension of the repayment period. The repayment plan can lower your monthly payments, making it easier to stay on track with your financial obligations.

Avoiding Repossession: Filing for Chapter 13 bankruptcy provides an automatic stay, which prevents creditors, including auto lenders, from pursuing repossession or other collection actions. This stay provides a breathing space, allowing you to work on your repayment plan without the constant fear of losing your vehicle. It’s a crucial shield that gives peace of mind and a chance for financial rehabilitation.

Steps for Navigating Chapter 13 Bankruptcy and Car Loans

While Chapter 13 bankruptcy offers a lifeline for individuals struggling with debt, it’s essential to approach the process with a clear understanding of its impact on car loans. Here are some practical tips for navigating this landscape:

1. Consult with a Bankruptcy Attorney: It’s crucial to consult with a knowledgeable bankruptcy attorney to ensure the best possible outcome for your situation. They can provide personalized guidance on the impact of Chapter 13 Bankruptcy and auto loans, how it will affect your car loans, and help you devise a repayment plan that aligns with your financial capabilities.

2. Maintain Proper Insurance: Without proper insurance for the car, the court will lift the protection that it is afforded in the bankruptcy, leading to repossession. 

3. Stay Committed to Your Repayment Plan: Navigating Chapter 13 and auto loans requires a commitment to the court-approved repayment plan. Adhering to the agreed-upon terms is essential for the success of your bankruptcy case and the retention of your vehicle. Regular communication with your bankruptcy trustee and attorney can help address any challenges during the process.

Can I Get a New Car During Chapter 13?

Acquiring a vehicle while actively engaged in Chapter 13 is possible but can be challenging. Many auto dealers are reluctant to navigate the complexities associated with court approval for a post-petition car loan. Securing a willing lender open to collaborate during an active Chapter 13 proves to be the largest obstacle. Nevertheless, we help our clients navigate getting a replacement car when needed in most instances.

During an active Chapter 13 case, taking on new debt requires explicit permission from the Trustee or Bankruptcy Court. A hearing may be scheduled where the debtor’s intention to take on new debt is communicated to the Judge and any interested creditors in the case. During the hearing, the trustee may raise queries and may or may not object to the request for a new car purchase. The bankruptcy attorney will advocate on the debtor’s behalf, and the ultimate decision rests with the Bankruptcy Judge, who determines whether to authorize the request. 

The process for navigating a Chapter 13 bankruptcy and auto loans involves three essential steps:

1. Contact you attorney who will walk you through the steps to getting a replacement vehicle. Your Chapter 13 attorney and the trustee may require adjustments to the existing plan and verification of your ability to afford the new vehicle. While the trustee may reject certain purchases, collaboration with your attorney and auto dealer can often find solutions, demonstrating the trustee’s commitment to ensuring reliable transportation during Chapter 13 bankruptcy.

2. First, secure financing from a car dealer, being sure you disclose your Chapter 13 status. Inform the dealer promptly, as a specialized financing procedure is required for approval.
   
3. Next, choose a car with reasonable payments that fit your budget. Have the dealer put your payment information on the Chapter 13 Trustee’s auto loan approval form, emphasizing the importance of minimizing payment and balance.
   

Is Chapter 13 Right for Me?

Learning how to navigate Chapter 13 bankruptcy and car payments can help you maintain ownership of your essential assets, such as your car. By understanding the impact of Chapter 13 on car loans and taking proactive steps, you can navigate this challenging terrain and work toward a more secure financial future. 

Sawin & Shea | Chapter 13 Bankruptcy

Reach out to the bankruptcy attorneys at Sawin & Shea today online or call us at 317-759-1483 for a free consultation on your unique Chapter 13 bankruptcy and car loan case. 

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Chapter 13 bankruptcy involves entering into a reorganization plan to protect assets, catch up on arrears on houses or cars, and force unsecured creditors to take reduced amounts based on what the bankruptcy law requires that you pay them. Over three to five years, you resolve your debts and get a fresh financial start.

But what if something unexpected happens along the way, like an illness, death, or job loss? It may be impossible for you to continue making your payments on time.

In a situation like this, a bankruptcy court will sometimes approve a bankruptcy hardship discharge. Here’s what you need to know about the process and your potential eligibility.

What is a Bankruptcy Hardship Discharge?

A bankruptcy discharge allows a premature release of your debt obligations when you have encountered an unforeseen obstacle to honoring your original repayment plan.

To receive the discharge, you must prove that you qualify in three ways:

1. You must demonstrate that the situation preventing you from honoring your Chapter 13 repayment plan is beyond your control and you should not “be justly held accountable.”
2. You have already paid your creditors at least as much as they would have received in a Chapter 7 bankruptcy, also known as a liquidation bankruptcy.
3. You must show that your current plan can’t be modified, so you need a hardship discharge.

Please note that you don’t just have to meet one of the above qualifications. You must meet all three to be granted a hardship discharge. Plus, your debts must meet certain criteria, as discussed in the next section.

How Does a Chapter 13 Hardship Discharge Work?

Any bankruptcy hardship discharge for Chapter 13 must be approved by the court. The trustee and judge will look at whether you’ve met the three criteria listed above and determine whether your debt itself is fully eligible for this type of discharge.  

Ineligible types of debt include secured debts, priority debts, and nondischargeable debts. If any of your debts are of these types, an application for a hardship discharge might not be the right way to proceed.

For example, if you have an automobile loan secured by a car, it is not eligible for a hardship discharge. An ineligible priority debt could be child support or alimony payments owed, which can’t be discharged despite the hardship in your life. A student loan is an example of a nondischargeable debt under federal law.

Potentially eligible types of debt include unsecured debts, non-priority debts, and dischargeable debts. Common types of unsecured debt include medical bills and utility bills. Non-priority debts might include credit cards or a personal loan. Dischargeable debts include a wide range of debts like loans and credit accounts.

What is the Connection Between Debt and Death in a Bankruptcy Hardship Discharge?

Death is one of the most common precursors to a Chapter 13 bankruptcy hardship discharge. Imagine that you were successfully making your payments but your spouse suddenly died and your household income was cut in half. 

Depending on your other circumstances, you might qualify for a hardship discharge. You’d need to prove to the court that your spouse has died, your household income has changed, and you also meet the other criteria.

You’ll need to show that the situation was beyond your control, you’ve already paid an amount beyond what you would have paid in Chapter 7 bankruptcy, and your current Chapter 13 plan can’t be modified. All of your debts must be eligible types to proceed with the bankruptcy hardship discharge.

To see if you’re eligible and potentially move forward with applying for the hardship discharge, talk to an experienced bankruptcy attorney who has handled these discharges successfully in the past.

Are You Eligible for a Chapter 13 Hardship Discharge? Ask Sawin & Shea, Indiana Bankruptcy Attorneys

If you still have questions about your eligibility for a Chapter 13 bankruptcy hardship discharge, please contact the experienced team at Sawin & Shea, LLC. We have been helping people navigate the bankruptcy process for years. Schedule a free consultation today at 317-759-1483. 

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What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, also known as a wage earner’s plan, allows individuals with regular income to repay all or a portion of their debts over a 3 to 5-year period. Under Chapter 13, the filer works with their attorney to come up with a court-approved repayment plan showing how they will pay something back to creditors over time. Collection efforts against the filer are prohibited during this repayment period. By stretching out, modifying, or reducing payments, Chapter 13 helps make debt more manageable for financially distressed individuals while allowing them the opportunity to save assets like their homes from foreclosure and cars from repossession. The money repaid goes primarily toward important priority debts like mortgages, car loans, taxes, and support obligations first. The remainder pays off a fraction of lower-priority debts such as credit cards, medical bills, and utilities. Ultimately, balances on most types of unsecured debts are discharged at the end of a plan.

Pros of Filing Chapter 13 Bankruptcy

1. Keep Valuable Assets: The number one advantage of Chapter 13 is being able to keep assets, especially expensive ones you rely on like your home or vehicle. As long as you keep up with repayment plan payments, you can avoid repossession or foreclosure. This buys time to catch up if you’ve fallen behind.

2. Lower Monthly Payments: By stretching out repayment over several years, monthly payments often decrease, providing financial relief. Your bankruptcy lawyer can negotiate lower balances or interest rates as well. Consolidating multiple debts into one payment is easier, too.  

3. Rebuild Credit: Although bankruptcy damages credit, entering a structured repayment plan shows responsibility. And Chapter 13 only stays on your report for seven years compared to 10 years for Chapter 7. Rebuilding credit during and after Chapter 13 is possible over time.

4. Multiple Filings Allowed: If you complete payments but still owe debt not covered in a Chapter 13 bankruptcy, you can file again. While multiple filings appear on your report, the option exists if problems persist. You can file Chapter 13 repeatedly.

Cons of Filing Chapter 13 Bankruptcy

1. Repayment Plan Difficulties: The 3-5-year repayment plan seems ideal but can prove challenging. Even missing payments risks dismissal, leaving no bankruptcy protection. Job loss, medical issues, and added expenses all strain the plan.

2. Certain Debts Remain: Common protected debts like most student loans, alimony, and child support can’t be discharged in Chapter 13. (These debts are also not discharged in a Chapter 7 case). Also, any debts incurred after filing aren’t covered, either. These obligations continue even after repayment plan completion.

4. Credit Damage: All bankruptcies hurt credit scores. While Chapter 13 looks better than Chapter 7 filings, you still can expect loan and credit denial, higher interest rates, and the necessity to work on credit rebuilding.  

Is Chapter 13 Bankruptcy Right for You? Ask the Experienced Bankruptcy Lawyers at Sawin & Shea, LLC

The choice between Chapter 7 and Chapter 13 bankruptcy depends on your unique situation. Meeting with a bankruptcy attorney at the initial consultation to review options is invaluable. If you have steady income to handle payments and want to keep assets, Chapter 13 may be the right answer for you. Evaluate priorities, weigh the pros and cons of filing Chapter 13, and seek legal advice to determine if it aligns with your debt relief needs.

Fortunately, you don’t have to go through the process alone. The Chapter 13 attorneys at Sawin & Shea, LLC can help you navigate the complexities of filing. Our team will work with you to find your best option, whether it means choosing Chapter 13, Chapter 7, or another option. Contact our lawyers today at 317-759-1483, or you can schedule a FREE consultation online here. 

The post Pros and Cons of Chapter 13 Bankruptcy appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.

First, let’s briefly touch on two of the most common types of bankruptcy: Chapter 7 and Chapter 13. 

What’s the Difference Between Chapter 7 and Chapter 13?

Put simply, Chapter 7 is a liquidation while Chapter 13 is about reorganization. What do we mean by this?

In the case of a Chapter 7 bankruptcy, the court appoints a trustee who is in charge of selling off (liquidating) a debtor’s non-exempt assets. Laws called exemption statutes determine what a person or married couple can keep through the Chapter 7 process. If a debtor has assets that are not protected under those statutes, the trustee can liquidate those items and use the proceeds to pay creditors back something. 

Chapter 13 involves commitment from the declarer to repay a portion of their debt over a specified period (usually three to five years). If the declarer keeps to the agreement, then at the end of the period, they can keep their otherwise nonexempt assets and all allowable remaining debts are discharged.

Why Does the Type of Debt You Have Matter in Bankruptcy Cases?

It matters because not all debts are equal in the eyes of the law. It distinguishes between what are called ‘secured’ and ‘unsecured’ debts, which are terms you need to know before filing for bankruptcy. 

And possibly the most common question people ask is credit card debt is secured or unsecured.

What is the difference?

Secured vs Unsecured Debt: What’s the Difference?

In broad terms, if a debt is secured, it means it is backed up by collateral property. If a debt is unsecured, no collateral is put up as a guarantee to pay. 

Unsecured Debt

What is unsecured debt? Unsecured debt would include things like:

• Medical bills
• Credit card bills
• Utility bills
• Back rent
• Personal loans

At the end of the bankruptcy process, the remaining balances for these types of unsecured debts will likely be forgiven. 

However, it is important to note that before bankruptcy is declared, lenders can still come after you to get you to pay off the unsecured debt. They may use collection agencies, or they may sue you (asking the court to garnish wages, take an asset, or put a lien on your home). One of the benefits of declaring bankruptcy is that debt collectors cannot try to collect on debts that were discharged in bankruptcy. 

Secured Debt

Secured debt would include things like:

• House mortgages
• Car/vehicle loans
• Some taxes
• Loans for furniture/appliances/large electronics

Which type of debt is most often secured? The two most common examples of secured debt are mortgages and auto loans. 

Secured Debt in Bankruptcy

A bankruptcy can discharge your underlying responsibility to pay the debt, but it does not do away with the creditors rights to the collateral they hold as security. That means that you must continue to pay on most secured debts to keep or hold onto the collateral.

This is accomplished by entering into a reaffirmation agreement in a Chapter 7. This is a voluntary agreement between a secured creditor and the debtor that re-obligates the debtor on the secured debt. The debtor must maintain regular payments on the secured loan in order to keep the collateral.

In a Chapter 13, the debtor’s reorganization plan sets forth how they are going to treat secured debt. A Chapter 13 plan can cure arrearages on houses or cars, stopping foreclosures and repossessions. Debtor’s plan can reorganize secured debt and pay it as part of the plan, many times at a lower interest rate and sometimes at the fair market value of the collateral even if they owe more on the loan. 

In both types of cases, a debtor can opt to give the collateral back to the lender and walk away from the debt, receiving a discharge on remaining balances. This is what is called a “surrender” under bankruptcy law.

Consulting with the Bankruptcy Experts at Sawin & Shea, LLC

Bankruptcy law and the process for filing are complex, and determining whether your debts are secured vs. unsecured and the options for treating them in a bankruptcy is something our attorneys can assist you with. 
An attorney with experience in bankruptcy law can help you with filings and discuss with you the credit consequences of filing for bankruptcy. The Indiana bankruptcy attorneys at Sawin & Shea, LLC have been helping people navigate the bankruptcy process for years. If you’re considering filing for bankruptcy, call us at 317-759-1483 or request your free consultation online.

The post Secured vs Unsecured Debt: Everything You Need to Know appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.

According to the Consumer Financial Protection Bureau, consumer credit reports show $88 billion in medical debt as of June 2021. However, it is expected that medical debts are much higher since not all medical debts are furnished to consumer reporting agencies. 

Because of the serious burden medical debts have placed on Americans, many are turning to bankruptcy as a potential option. However, while bankruptcy can help, it’s important to understand how the process works, especially concerning your medical debt. 

At Sawin & Shea, our team of Chapter 7 and Chapter 13 bankruptcy lawyers is here to help. We understand how stressful even just considering bankruptcy can be and are dedicated to providing quality, compassionate representation to help you through this trying time. 

Can You File Bankruptcy on Medical Bills?

Simply put, yes, you can file bankruptcy on your medical bills. Your medical bills are considered “unsecured debts” which means there is no property that can be taken from you under contract as a result of not paying your medical bills — and most unsecured debts, like medical bills, are eligible for bankruptcy. 

Medical debts are also considered a necessity, which means they are protected under the “necessity” doctrine. In other words, because medical debts typically come from paying for treatment that is considered a life necessity, they cannot be subjected to fraud or luxury purchase analysis. Thus your right to have your medical debts discharged will not be taken away. 

Does Bankruptcy Clear Medical Debt?

How your medical debts are discharged or if they are fully discharged will depend on the type of  bankruptcy you file. 

Chapter 7 Medical Debts & Bankruptcy

If you file Chapter 7, you can have your medical debts discharged or wiped away, however, there is a caveat. In Chapter 7, certain non-exempt assets can be used to pay off your debts. Some of your property will be exempt, such as your personal property and necessities. 

However, each state has a statutory structure that determines what assets you can hold onto thoroug the bankruptcy process. Non-exempt items could be taken, liquidated, and the proceeds used to help pay your creditors something.. If you have any assets you are worried about losing, consult a bankruptcy attorney who can talk to you about what you can hold onto in a Chapter 7.  Chapter 7 may not aways be the best option, but it is a way to have all of your medical debts cleared.

Chapter 13 Medical Debts & Bankruptcy

Chapter 13 bankruptcies work by setting up a three- to five-year payment plan so you can make more affordable payments based on what the law says you have to pay under a couple of tests. In these cases, your assets and property are protected and will not be taken from you, but you will still be required to make a payment on your debts. What you have to pay is a function of an asset based test and an income based test. Many Chapter 13 Debtors pay pennies on the dollar back to their unsecured creditors.

After you have completed your Chapter 13 payment plan, if there is any remaining unsecured debt, it will be discharged with a few exceptions like some taxes, most student loans, and child support. This is the better option if you want to protect your assets, or if you are otherwise not eligible for a Chapter 7 case.

How to Qualify for Bankruptcies

If you intend to file bankruptcy for your medical debts, you will need to meet certain requirements. For Chapter 7 the requirements are as follows:

• Your average monthly income from the past six months must be lower than the median income for your household size in your state. You may also need to take a means test to determine whether your disposable income is high enough to make partial payments. 
• You haven’t filed for Chapter 7 bankruptcy in the past eight years.
• You haven’t filed for Chapter 13 bankruptcy in the past six years. 

For Chapter 13 bankruptcy, the following are the requirements:

• You have sufficient income to make the payments outlined in your bankruptcy plan.
• Your combined total secured and unsecured debts are less than $2,750,000.
• You can provide proof of filing your federal and state tax returns for the past four years.

How Sawin & Shea, LLC Can Help

At Sawin & Shea, we believe in providing compassionate and understanding representation to those struggling with debt. We understand how stressful and even confusing filing for bankruptcy can be. Our bankruptcy attorneys have years of experience in bankruptcy cases, including those involving medical debts, and can help walk you through the process every step of the way. We can even offer guidance after your bankruptcy case has ended. 

Contact us at 317-759-1483 or send us an email for a free consultation today!

The post What Should You Know About Medical Debts & Bankruptcy? appeared first on Indianapolis Bankruptcy Attorneys of Sawin & Shea.