It is often surprising to clients to learn that bankruptcy is not as bad as they always thought. Bankruptcy should rightly be thought of as a last resort, as it is not something to be taken lightly. However, often clients mistakenly believe the myth that bankruptcy will ruin your credit for 7-10 years. There is usually some truth in myths, so let us explain. The fact of the matter is that bankruptcy will typically be reported on a credit file by the credit bureaus for 7 years. There are some credit bureaus which report it up to 10 years, but whether a bankruptcy displays on your credit file or not does not necessarily indicate the strength and level of your creditworthiness. The reason for this is that credit scores and a person’s creditworthiness for a particular lender depends mainly on a two year running history. Reach out to a dallas bankruptcy lawyer for more information about specific details on bankruptcy.
Two Years of Credit History Used to Determine the Bulk of Your Creditworthiness
What that means is that once two years have passed since you filed bankruptcy, your credit score could begin to climb fairly steadily. Many bankruptcy clients also have the ability to get their credit scores to 720 within a year to two years after bankruptcy simply by paying all bills on time and being diligent and careful with managing their debt. The all important phrase “paid as agreed” or “pays as agreed” comes into play here. What that means is that if you pay your bill as agreed, then you will be given good marks by the credit bureaus. If you miss a payment for $5 or for $5,000, your credit will take a hit that is nearly identical because it will show a late payment and the late part is the part that will hit your credit.
Many people are also surprised to learn that many people have filed bankruptcy whom they never would have thought would have filed bankruptcy. People are all around us, neighbors, friends from church, social group and lifelong friends who have filed bankruptcy without us even realizing it. This is because when a person files bankruptcy, their name is not splashed across a billboard describing their financial troubles. Bankruptcy is typically a very private thing for people.
Ch. 7 Filing in Dallas, TX
Understanding Liquidation and What is Meant by Liquidation
Chapter 7 bankruptcy, also known as “straight bankruptcy,” is a common form of filing which is available to certain eligible consumers and businesses. Chapter 7 bankruptcy involves the liquidation, or sale, of a consumer’s non-exempt assets. Proceeds from the liquidation, if any liquidation occurs, are used to pay creditors at least a portion of the debts they are owed. Following the liquidation, consumers will then be eligible to obtain a discharge of certain unsecured debts, which can provide much-needed debt relief and a financial fresh start. At Archer Bay, our team of bankruptcy lawyers guides clients through every step of the Chapter 7 process.
Qualifying for Chapter
In response to the increase in filings, the U.S. government has tightened eligibility requirements in order to reserve Chapter 7 to consumers who lack the funds to pay their preexisting debt and who are truly in need. In order to qualify for Ch. 7 bankruptcy, you must submit your financial information to the court for an income-based evaluation known as the means test. The means test will compare your average monthly income to the state of Texas’ median monthly income.If your monthly income is less than Texas’ median monthly income, then you will automatically be eligible to file Chapter 7 bankruptcy. If it is greater, then the court will further review your situation to determine if your disposable income is enough to make monthly payments toward your debt.
If it is determined that you are not able to pay at least a certain percentage of your debt over the course of the three to five year Chapter 13 payment plan, then you most likely will be able to file Ch. 7. If you have the available funds to pay a certain percentage of your debt, then you most likely will be required to file Chapter 13. Our legal team can analyze your financial picture and help you determine your eligibility.
Understanding Chapter 7 Filings
Just as in any bankruptcy process, the initial stages of the Chapter 7 process will adhere to a basic timeline. After filing your formal petition and qualifying for Chapter 7 using the means test, the court will issue what is known as the automatic stay. The automatic stay orders all collection activities against you to cease while your case is pending, including any foreclosure proceedings, wage garnishment, repossessions, and others.
The court will then accumulate information about your financial situation, including a full evaluation of your debts, assets, and living expenses. With this information, a court-appointed trustee will gather your non-exempt assets and prepare them for liquidation. You will also have the opportunity to claim exemptions that allow you to protect certain personal property, including tools of the trade, vehicles, and others. As an overwhelming majority of Chapter 7 cases are “no asset” cases, there may be a strong possibility that you will not have any assets to be liquidated.
After liquidation, if one occurs, you will be eligible to obtain a discharge of certain debts. A debt discharge is one of the most prominent aspects of the bankruptcy process. It releases you from all liabilities and obligations associated with a debt, and creditors and collectors will be prohibited from pursuing any debts that have been discharged. The debts you are able to discharge will depend on your personal situation. Generally, dischargeable debts are limited to unsecured debts such as credit card debts, medical bills, payday and personal loans, and others. Our legal team can further inform you of the ways in which a discharge will work in your case.
Contact a Lawyer to Learn More About Chapter 7
Chapter 7 bankruptcy is available to people who are truly in need of debt relief and a fresh start. As the process can be difficult, our attorneys make sure to walk you through each step and to always clarify anything you do not fully understand. As we field a highly experienced legal team, and because Attorney Chad Van Horn has been included in the prestigious 2013 Super Lawyers®list of Rising Stars℠, you can be confident that should you choose to work with the DFW law offices of Oliver Legal, you will receive the support and assistance you need to complete your debt relief journey smoothly and successfully. Contact a DFW attorney from our firm today.