Many people do not consider bankruptcy because they know that the bankruptcy will show up on their credit report for ten years following the discharge of their debts. However, in certain situations, it is worth taking a hit on your credit to gain control of your finances and, for many Americans, bankruptcy actually helps their credit in the long run.
Fear of effects on your credit score should not prevent you from considering bankruptcy to solve your financial problems. Call the experienced bankruptcy attorneys at the Ellett Law Offices in Phoenix at 602-235-9510 to discuss your options today.
How can bankruptcy help credit?
Often people who are considering bankruptcy are already behind on numerous debts, which have likely caused their credit scores to plummet. Unpaid defaults will continue to affect your score until they are paid. Bankruptcy will effectively resolve most of those defaulted debts (with some exceptions) and therefore your score could start to improve over time. Even if some debts are not dischargeable in your bankruptcy, such as student loans, discharging other debts will free up money to become current on the lingering debts.
Additionally, if a creditor sues you and obtains a judgment, that judgment will report on your credit and will negatively affect your score. If you are being sued, filing for bankruptcy in Phoenix, Arizona will stop the lawsuit from progressing due to the automatic stay1. This can help avoid a judgment from ever being issued and can save you many points on your credit score in the long run.
Will I be able to get new credit after bankruptcy?
Having a bankruptcy on your credit will likely limit your options for new credit for a period of time, however it will not nearly be for ten years. After a year or so, entities including FHA (Federal Housing Administration)2 and other creditors will likely be willing to lend to you. Though you may not qualify for the lowest possible interest rate, you will still be able to finance things like a house or a car. You may re-establish unsecured debt through a secured credit card or other similar account, which will also improve your credit score more quickly.
Americans face financial difficulties for many different reasons. While some financial hard times are temporary and resolve themselves, in other situations people require legal solutions to get back on their feet. The following are six of the main reasons why individuals or couples file for bankruptcy in the United States, as reported by our bankruptcy lawyers in Phoenix.
1. Medical bills. Media reports indicate that medical debt due to illness or injury is the leading cause of bankruptcy in the United States. Even if individuals have health insurance, the cost to treat serious conditions may easily exceed policy limits causing overwhelming medical debt.
2. Unemployment. It is no surprise that unexpectedly loss of a job causes people to file bankruptcy. Unemployment benefits are often not enough to cover household expenses and, if you are unable to find a new job in a timely fashion, you may have to rely on credit cards to cover expenses or may fall significantly behind on bills.
3. Credit card debt. Credit card companies have many practices that make it difficult for people to even afford a minimum payment. Fees for going over your limit or paying late can be $39.00, plus companies may raise your interest rate over 30 percent if you fail to make a payment. In such situations, your balance can grow extremely quickly and minimum payments may not even make a dent.
4. Predatory lending. If you were the victim of a predatory mortgage lender, you may be unable to make your mortgage payments. Bankruptcy is one way that victims of fraudulent or predatory lending practices can overcome this situation.
5. Collectors. Anyone who has had a bill in collections should understand how stressful the daily calls and regular letters may be. If you have several bills in collections, you may spend most of your day simply evading calls from collectors and bankruptcy is often the fastest way to make the harassment stop.
6. Garnishments2. If a creditor obtains a judgment against you, you may suddenly find your wages garnished as a result. If you had trouble paying your bills before, receiving lower wages will only make your situation worse and may lead you to file bankruptcy to stop the garnishment and discharge your judgment.
If you are considering bankruptcy for any reason, call the Ellett Law Offices in Phoenix at 602-235-9510 for assistance today.
Many people who are experiencing financial problems and make a consistent monthly income can benefit from filing for Chapter 13 bankruptcy1. Under Chapter 13, a debtor’s debts are reorganized under a court approved plan and monthly payments are made to the bankruptcy trustee who distributes the money amongst various creditors. While payments are being made, a debtor’s assets are protected from collection attempts including repossession and foreclosure. In many cases, debtors who are at imminent risk of losing their assets are able to keep them by filing Chapter 13.
The Hardship Discharge
People who enter into Chapter 13 bankruptcy must make payments to a Chapter 13 trustee. In some cases, it may become impossible for the debtor to keep making payments due to circumstances out of their control. In this circumstance, the debtor may be eligible for a Chapter 13 hardship discharge under 11 U.S.C. § 1328(b)2. Under this provision, a debtor may be entitled to a discharge of his or her debts if:
- The circumstances making the debtor unable to pay his or her debts are beyond the debtors control and exist through no fault of the debtors
- Creditors have received at least much as they would have received had the debtor filed for Chapter 7 bankruptcy
- Modification of the plan would not be practical
This type of discharge is more limited than the discharge that occurs at the end of Chapter13 and does not include any debts that would not be discharged in a Chapter 7 bankruptcy. Examples of the types of circumstances that may justify a hardship discharge include illness or injury that would make it impossible for a debtor to pay even under a modified plan.
Contact a Phoenix bankruptcy attorney today to schedule a free consultation
Anyone considering Chapter 13 bankruptcy or seeking a hardship discharge should discuss their situation with an experienced bankruptcy lawyer as soon as possible. In many cases, the assistance of a lawyer can have a significant impact on the outcome of a judicial proceeding. Attorney Ronald J. Ellett has been assisting Phoenix residents file for bankruptcy and obtain a fresh start for over 20 years. To schedule a free consultation with Mr. Ellett, call our office today at (602) 235-9510.
Most American households have several different kinds of debts and unfortunately, many people struggle to make timely payments on all of them. If you are struggling financially, you should not hesitate to contact the Ellett Law Offices, P.C. in Phoenix to discuss whether Chapter 7 bankruptcy can help you. We offer free consultations, so please call us today at 602-235-9510 for assistance.
The United States Bankruptcy Courts report that Chapter 7 bankruptcy helped over 700,000 Americans in 2013 alone. While the main goal of Chapter 7 bankruptcy is to discharge debts in order to relieve liability, filing under Chapter 7 is not necessarily the best option for everyone struggling with debts. One reason for this is because not every type of debt qualifies for discharge.
Under 11 U.S. Code § 523 of the U.S. Bankruptcy Code, the following types of debts are not eligible for discharge under Chapter 7:
- Student loans (except in rare cases)
- Child support or alimony arrears
- Debts arising from judgments related to a divorce
- Attorney fees for cases involving child support or custody
- Fines or penalties owed to the government
- Federal tax liens
- Certain types of homeowners association fees for condos or coops
- Criminal fines, penalties, and restitution
- Personal injury judgments due to accidents you caused while driving under the influence
In other situations, a creditor may come forward and challenge a discharge based on certain grounds. If the court agrees with the challenge, the court may rule the debt nondischargeable. Grounds for such challenges commonly include that you obtained the debt through fraudulent actions or false pretenses, or that the debt arose from willful or malicious actions on your part.
Creditors may also challenge any large cash advances or luxury credit card purchases that you made in the 90 days prior to your bankruptcy filing as they will claim you only made the purchases in anticipation of discharging the debt. An attorney can argue on your behalf in such challenges, offering evidence that you intended to pay the money back in good faith or that the purchases did not constitute “luxury items.” This is only one of many ways an attorney can be extremely beneficial in a bankruptcy case.
Almost everyone is aware that individuals who are struggling financially can seek relief by filing for personal bankruptcy under the United States Bankruptcy Code. Additionally, headlines regularly feature huge corporations, such as General Motors or American Airlines, that have filed for bankruptcy due to significant losses. However, many small business owners often wonder how bankruptcy may apply to them if their business is in financial trouble.
There are several different options for small business owners, and the right option for you will depend on certain factors, such as the type of business entity you own, the amount of debt your business has, and whether or not you wish to continue operations or liquidate your business. The following information briefly explains some of the bankruptcy types available to small business owners.
Chapter 7 bankruptcy may be helpful no matter what type of business entity you have. If you have a sole proprietorship, you are personally liable for your business debts, so you must file for personal bankruptcy to discharge those debts. If you have a corporation, limited liability company, or partnership, you can file for Chapter 7 on behalf of the business. Chapter 7, however, is generally used to liquidate and close a business.
Business entities can file for Chapter 11 bankruptcy, and this type of filing is primarily for business owners who wish to remain in operation and reorganize the business debts into a manageable payment plan. This kind of bankruptcy may be complex and costly, though if your business has lower debts, the process may be simpler and faster.
Businesses may not file under Chapter 13, however owners of sole proprietorships and owners of corporations may file on a personal bankruptcy. This type of bankruptcy allows you to retain ownership of your business.
Contact an experienced Phoenix bankruptcy lawyer for a free consultation
Whether you are considering bankruptcy to help with your personal finances, your small business finances, or both, the committed bankruptcy team at Ellett Law Offices, PC can advise you of which debt relief option is best for your situation. Please contact our office at (602) 235-9510 to schedule your free consultation today.