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Michael D. Hart, P.C.
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Roanoke Virginia Bankruptcy Law Blog

Which chapter of consumer bankruptcy is right for you?

Making the choice to file for bankruptcy is not an easy one to make. If you find yourself in a position where this is necessary, you are probably dealing with past-due balances and debt you can no longer manage on your own. Bankruptcy offers overwhelmed consumers the ability to deal with certain types of balances once and for all. 

There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. The right option for you depends on the details of your individual financial situation and the types of debt you have. There are eligibility requirements for both. It may be helpful to learn more about the two options available to you and how you can know which one will help you reach a better and stronger financial future.

Bankruptcy may not keep people from getting a job

People in Virginia may have always been under the impression that filing for bankruptcy could have a catastrophic effect on their future even though their debt has been discharged. However, researchers now believe that one of the possible effects, not being able to find a job, is less of a risk than previously thought.

Researchers studied data over a three-year period for people who had previously declared bankruptcy. They found that the odds of securing employment were little changed if someone had an indication of a bankruptcy on their record. They also found that bankruptcy did not have an impact on whether someone could keep their job.

The various ways to pay down debt balances

Virginia residents who have car loans, mortgages or credit card balances are carrying debt. While being in debt isn't necessarily a bad thing in itself, individuals may find themselves unable to repay their creditors in a timely manner. Fortunately, there are steps that individuals can take to get a better handle on their finances. For instance, it may be possible to consolidate multiple balances into one monthly payment by obtaining a personal loan.

Debt can also be consolidated through a credit card balance transfer, home equity loan or other loan products. However, personal loans and credit card balance transfers are typically only available to those who have good or excellent credit. The debt snowball method can be helpful for those who are trying to get out of debt but don't know how to get started. Those who use the debt snowball method will first make the minimum monthly payments on all of their debts each month.

Bankruptcy may remove second mortgage liens

A Virginia homeowner who takes out a home equity loan is said to have obtained a second mortgage. The home equity lender is considered to have a secondary position on the home's title. However, that lender can still foreclose on a borrower who fails to make payments. It's possible to strip a second mortgage lien by filing for Chapter 13 bankruptcy.

In a Chapter 13 proceeding, the second mortgage can sometimes be converted from secured to unsecured debt. This typically happens when a borrower has little positive equity or has negative equity in the home. At the end of the three- or five-year repayment plan, a debtor can move to have unsecured debts discharged. After a debt is discharged, the borrower generally has no obligation to make future payments. In some cases, one will need to take extra steps after the repayment plan ends to formally strip a lien.

Court looks at creditor obligations for automatic stays

A Virginia bankruptcy court has ruled that if a creditor does not act to stop a collection activity prior to a person's filing for bankruptcy, this could be considered a violation of the automatic stay. However, the United States Supreme Court will rule on this issue later in the year.

In the Virginia case, an attorney had represented a woman in her divorce, and the woman did not pay the attorney the full amount owed. The attorney was able to get a wage garnishment against the woman. A hearing was schedule regarding $1,000 in wage deductions that was being held by the state court, but in the meantime, the woman filed for Chapter 7 bankruptcy. In the bankruptcy petition, the $1,000 was listed as an exemption. The attorney was told by the woman's counsel to stop the garnishment, but the attorney said he was not obligated to perform an action to stop the process.

How to obtain relief from unsecured debts

Chapter 7 bankruptcy may be an effective way for debtors in Virginia and other states to regain control of their finances. An individual might qualify for Chapter 7 bankruptcy by passing the means test. The means test evaluates a person's income to determine if it is above or below the state median. A person could also qualify to file for a liquidation bankruptcy if that individual has not had a Chapter 7 case discharged in the past eight years.

Furthermore, a debtor must not have had a Chapter 13 case discharged in the previous six years. Anyone who has had a case dismissed in the last 180 days may not be eligible to file again. This is likely true for those who had their cases dismissed because they were deemed to have abused the bankruptcy system. It also typically applies to debtors who violated a court order or committed fraud.

If I file for Chapter 7 bankruptcy, will I lose all of my assets?

Do you have concerns about what bankruptcy could mean for your personal property? Are fears regarding the loss of your important assets and things you need for daily life holding you back from making a decision that could positively impact your financial future? If so, you are not alone. Misconceptions and concerns about bankruptcy keep many Virginia consumers from exploring this potential option.

Thankfully, the intent of bankruptcy laws is to help an applicant overwhelmed by debt deal with certain types of balances. The point is not to leave a person penniless and without any property. If you file for Chapter 7 bankruptcy, which is a popular choice for many consumers, you may have to give up some property. However, it may surprise you learn that many types of property are exempt from liquidation.

Preparing for taxes during bankruptcy

Many people in Virginia have found a path to debt relief and a new financial future by filing for personal bankruptcy. However, when tax time rolls around, they may be concerned about how their Chapter 7 or Chapter 13 filing may impact their annual tax returns to the IRS. There are a few things for people to keep in mind when preparing their Form 1040 for submission after a bankruptcy. In the first place, it is important for people going through a bankruptcy case to file their tax return correctly and promptly. Under the bankruptcy code, people who do not file their tax returns or request an extension before the deadline may have their bankruptcy cases dismissed.

Those who are currently going through a bankruptcy may also want to make sure that the trustee for the process files Form 1041, an estate tax return, for the property they are managing in trust. This is especially true if, as in some cases, the person going through the bankruptcy is also serving as the trustee, rather than a professional in that position. While it is important to file an income tax return, the process may be different while the bankruptcy is underway.

Rules for refinancing a home loan after bankruptcy

Virginia homeowners and others throughout the country may be interested in refinancing their mortgages after filing for bankruptcy. However, an individual will likely need to wait at least a year before a home loan can be changed in any way. Those who have an FHA loan will need to wait up to two years after filing for bankruptcy to change the terms of their mortgages. The waiting period decreases to one year if the bankruptcy was caused by circumstances outside of a person's control.

Extenuating circumstances could include the death of the family's primary income earner or an illness that makes it impossible to work. Those who have conventional mortgages can refinance them four years after filing for Chapter 7 bankruptcy, and the waiting period is two years if extenuating circumstances caused a person to encounter financial distress.

Conquering debt one step at a time

In Virginia, many older adults wonder if they will get out of debt before retirement. Some have spent numerous years accumulating debt. These individuals confront financial difficulties -- including the reality that they never had the chance to save any money -- by the time they retire. Unfortunately, debt usually begins early in adult life.

For example, college students often get into debt but are unable to pay back the borrowed funds. Higher interest rates on credit cards make it impossible for them to pay back their debts. Many people max out their credit cards because they do not have enough money to pay for their daily expenses. Moreover, these same individuals often possess several credit cards, and this results in owing thousands of dollars to lenders.


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