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How to Celebrate the Holidays During Bankruptcy

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Scrounging for funds during the holiday gift-giving season is taxing enough for people on a budget. Introduce bankruptcy into the scenario, and individuals will be challenged to buy holiday gifts, purchase plane tickets to visit relatives and pay for the culinary feasts that accompany the festivities.

Christmas-Tree-Fireplace-GiftsFortunately, people who file for bankruptcy, whether it is Chapter 7 or Chapter 13, can still make financial ends meet during the holidays. Celebrating the joys of the season takes strategy and planning, even for individuals stuck on a rigid monthly repayment plan for the next three to five years.

1. Understand Challenges

Disposable income is defined as the end-of-month cash a person possesses after paying all obligatory expenses as well as reasonable ones. Normally, disposable income is spent on the season’s gifts, charitable contributions, and travel. But in bankruptcy cases, this excess income goes to creditors.

Restrictions are imposed on how disposable income may be spent, especially if purchases are considered unnecessary or unreasonable. Plus, in Bankruptcy 13 cases, the debtor must refrain from accruing new debt, except under pressing circumstances and only with the court’s permission.

Given the mounting expenses of the holiday season plus the tight restrictions of Bankruptcy 13, debtors will be hard pressed to get through the season without strain. Surplus cash may be obtained without resorting to borrowing from a bank or getting a loan.

2. Start Saving Early

Financial institutions provide assistance to debtors who aim to save a wad of cash before the holidays. Known as the “Christmas Club,” these programs incentivize account holders to make regular payments throughout the year. The interest is paid out in November, just in time for holiday shopping.

Programs, like the “Christmas Club” were popular decades ago. Now, mostly local credit unions offer similar programs. Be forewarned that such programs are known to pay meager interest. However, clubs do not charge fees, except in the cases of early withdrawal.

A similar alternative to the “Christmas Club” is the personal automatic savings plan offered by banks. A pre-set amount of funds specified by the contributor is automatically transferred into a plan, eliminating the need for manual deposits. Spending habits are managed, and funds steadily build up.

The key to building up substantial funds for the holidays is to start an automatic savings plan early. For instance, designating $10 each week into a plan at the start of the year provides the contributor with $520 by year’s end to allocate to holiday shopping and celebrating.

3. Use Tax RefundsBankruptcy-Coins-on-Desk-Calculator-Reviewing-Documents

Spring is when the IRS sends tax refunds. Under Illinois law, debtors may claim a “wildcard” exemption of personal property and protect tax refunds. The trustee handling the case will unlikely seize the tax refund to repay creditors if the Chapter 13 repayment plan repays 100 percent of the debt.

However, the trustee appointed to handle a partial Chapter 13 repayment plan will seize the tax refund and repay creditors. The repayment plan approved by the court specifies the treatment of tax refunds. Under favorable circumstances, IRS refunds may be used to cover holiday expenses.

4. Buy on Credit

Credit card use helps debtors build a good credit score. It is critical that debtors pay off the debt on time each month. Banks offer a secured credit card, which requires a deposit that is linked to the credit limit. Holiday splurging may be accomplished with responsible credit card usage.

Filing for Chapter 7 bankruptcy discharges all credit card debt. Keep in mind that excess spending just prior to filing for bankruptcy is easily recognized by the courts and is severely frowned upon. The last thing debtors need is to face an allegation of bankruptcy fraud.

5. Modify Repayments

A Chapter 13 repayment plan may be modified so that payments are temporarily reduced and the savings are used for holiday spending. However, expect to pay hundreds of dollars in attorney fees to make the request to the courts. Plan on higher repayments to make up for the lower ones.

6. Gift Resourcefully

Family-Christmas-Holiday-Hats

Presents may be given without a dime exchanged for them. Consider gifting personal services or homemade goods to holiday recipients. A special handmade craft or tray of home-baked goods are heartfelt gifts that will never run up additional debt and destroy the spirit of the season.

The holiday meal can be economically spruced up by requesting everyone pitch in for an appetizing potluck. Or, purchase a gift for one individual whose name is pulled from a hat, rather than spending extravagantly on multiple gifts for the extended family.

Debts can arise from any of numerous predicaments, from unexpected medical bills to major credit card spending. Filing for bankruptcy can help discharge all debts, especially if filing for Chapter 7 bankruptcy. Even with substantial income, filing for Chapter 13 bankruptcy may be necessary.

Work with a Bankruptcy Attorney

Lift debt and your spirits this holiday season by consulting a reputable bankruptcy lawyer from Berry K. Tucker & Associates, Ltd. Experienced lawyers from our Oak Lawn law firm successfully fight for the rights of countless area residents and effectively counsel many more.

We offer over 50 years of combined legal expertise in handling bankruptcy cases. Attorneys from Berry K. Tucker & Associates, Ltd. keep abreast of the changes to Illinois bankruptcy laws, ensuring clients receive the most qualified representation and legal advice. Our lawyers assess every unique situation and advise clients of their best legal options.

Berry-K.-Tucker-Personal-Injury-Lawyer-Oak-Lawn-ILBerry K. Tucker & Associates, Ltd. have handled Chapter 7 bankruptcy cases involving car repossessions, credit card debt, medical debt, and home foreclosure judgments. We also represent clients filing for Chapter 13 bankruptcy and help them set up effective repayment plans.

Residents in the community of Oak Lawn, Illinois, trust the legal advice and qualified representation from the legal team at Berry K. Tucker & Associates, Ltd. When filing for bankruptcy the right way is important to you, consult our bankruptcy law firm to discuss your legal options.

Contact Us

To speak with one of our bankruptcy attorneys in the Oak Lawn, IL area, contact Berry K. Tucker & Associates, Ltd. at (708) 425-9530.

9 Tips to Rebuild Your Credit After Bankruptcy

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Filing for bankruptcy is a difficult decision to make, but it is sometimes necessary to have your debts forgiven and start over.  While filing for bankruptcy can erase your debts, your credit score will rarely make it through bankruptcy unscathed.Credit-Card-Debt-Bankruptcy-Attorneys-Oak-Lawn-IL

Whether you file for Chapter 13 or Chapter 7 bankruptcy, your credit score is going to take a hit.  It is difficult to maintain your credit score through the bankruptcy process, even if you make your payments and avoid collections accounts.  Fortunately, it is possible to restore your credit score after filing for bankruptcy.

Once the bankruptcy process has been completed, you will need to start over and rebuilding your credit is an important first step.  This may seem like an uphill battle, but there are steps you can take to rebuild your credit to a respectable level so that you can qualify for a credit card or a loan for a new car or home.

Before getting into the steps that can help you rebuild your credit score, it is important to understand the different types of bankruptcy.

Chapter 13 and Chapter 7 Bankruptcy

When individuals file for bankruptcy, they will generally file for Chapter 7 or Chapter 13 bankruptcy.  There are major differences between the two including the reasons to file, eligibility, and penalties.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the more common of the two as people who file for Chapter 7 generally do not have the income or the means to repay all or some of their debt.  This type of bankruptcy is known as liquidation bankruptcy because the debtor must sell their property to make their payments and avoid repossession.  To be eligible to file for Chapter 7, you must have a low disposable income that passes the means test and it can take 3-5 months to receive a discharge.  Chapter 7 also carries a ten-year penalty in which it will appear on your credit report.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is filed by individuals who have substantial income but cannot repay their debts in full.  In these cases, the debt is reorganized and the individual is expected to complete a court mandated payment plan that can take 3-5 years.  Debtors who file Chapter 13 can keep their property if they catch up on their payments during the repayment period.  Chapter 13 bankruptcy carries a less harsh seven-year penalty.

How to Build Credit After Bankruptcy

Building your credit score after filing for bankruptcy is important for regaining your financial stability.  The following steps will help you rebuild your credit after the debts included in your bankruptcy have been discharged.

1. Keep Track of the Penalty Duration

The penalty duration starts on the date that you file for bankruptcy and will remain on your credit report until the penalty expires.  Once you declare bankruptcy, by law, you cannot file for bankruptcy again for seven years.  The penalty for Chapter 7 bankruptcy will end 10 years after the file date and the Chapter 13 penalty will end 7 years after filing.  Therefore, if you filed for Chapter 13 bankruptcy and took 5 years to complete the repayment plan and discharge your debts, you will have two more years left until the penalty ends.

2. Check Account Statuses on your Credit Report

After completing your bankruptcy, the statuses of your accounts included in the bankruptcy should say “included in bankruptcy” or “discharged” and have a balance of $0.  It is important for your accounts to show this status because it is worse for these accounts to show that they are delinquent or active with outstanding balances.  If your accounts included in your bankruptcy are shown as active, current, or delinquent, make sure this is corrected immediately and that these accounts show a $0 balance.

3. Make Payments on Non-Bankruptcy Accounts

When you file for bankruptcy, some of your accounts may be excluded.  Certain debts like student loan debt cannot be included in a bankruptcy discharge.  It is very important for you to keep making payments on these accounts to improve your credit score.  Even if these accounts are not included on your credit score, you could experience trouble in the future if you do not keep up on the payments.

4. Watch your Collection Accounts

It is common for collections accounts to appear on your credit report after filing for bankruptcy.  Generally, these accounts will appear on your credit report for up to seven years after repayment, but you can make an agreement with the collector to remove these accounts upon completion of the payment.  If you do make such an agreement with a collector, make sure you get the agreement in writing so you can have it removed from your credit score if it still appears after you complete your payment.

5. Apply for a New Credit Card

This step is usually difficult after filing for bankruptcy, but it is crucial to restoring your credit.  Applicants who have recently filed for bankruptcy are sometimes approved because credit card companies understand that you cannot lawfully file for bankruptcy for up to seven years, depending on your file date.  If you are not able to qualify for a typical credit card, you may qualify for retail or gas credit cards.  Just be aware that these cards carry higher interest rates.

If you cannot get a traditional credit card or retail card, you should consider a secured credit card.  These credit cards require a down payment for the protection of the lender.  If you pay off the balance of your secured credit card every month for at least one year, the lender may convert this card to an unsecured credit card.

Whether you get a traditional credit card or secured credit card, make sure you keep your monthly balances reasonable so you can pay them each month in full.  This will help you control the interest and slowly rebuild your credit score.  Late payments will appear on your credit report and may remain there for up to seven years which can negatively impact your credit rating, especially if your bankruptcy still appears on your credit report.

6. Use a Co-Signer

Using a co-signer will help you qualify for credit cards and loans that may otherwise be difficult to get.  If you do use a co-signer, keeping up with the payments is extremely important.  Anything from one late payment to a default will negatively affect the co-signer’s credit score in addition to yours.

7. Do Not Frequently Change Jobs

While jumping from job to job will not affect your credit score, it can still impact your ability to apply for a line of credit.  Lenders will research your job history when you apply for a new line of credit and they may be less likely to approve if you change jobs too often.  Sticking with one job will show that you are responsible and have a stable income while jumping between jobs can suggest a lack of discipline.

8. Do Not Frequently Apply for New Credit

When applying for new lines of credit after bankruptcy, make sure you spread out your applications.  Too many applications within a six-month period will not only negatively impact your credit score, but also make you seem desperate to lenders.  You should apply for one line of credit every six months and only apply for another line of credit if you can manage the debt from the first line of credit.

9. Do Not Remove Everything from your Credit Score

Removing accounts from your credit report that were included in bankruptcy may seem like the right thing to do, but this may lower your score.  The number of accounts, types of accounts, and age of the accounts that appear on your credit score are all factored into your credit score.  Removing old accounts from your credit report, even those “included in bankruptcy,” will lower the number of accounts on your report and shorten your credit history which can lower your credit score.

Get Help from Bankruptcy AttorneysCheri-Costa-Family-Divorce-Attorney-Oak-Lawn-IL

Filing for bankruptcy is often a difficult, complex process.  It is important to file for the right type of bankruptcy and if you are not aware of all your legal options, you may not make the best decisions.  The bankruptcy attorneys of Berry K. Tucker & Associates, Ltd. are experienced in bankruptcy proceedings and will help you make the best decisions when filing for bankruptcy.  We can help make sense of a complicated process and create a plan that will get you through the bankruptcy and rebuild your credit score in the aftermath.

Contact Us

Give Berry K. Tucker & Associates, Ltd. a call at (708) 425-9530 to speak with a qualified bankruptcy attorney in the Oak Lawn, IL area. We provide free consultations.

How Filing for Bankruptcy Can Affect Your Spouse

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A married person filing for bankruptcy can do so with or without his or her spouse. However, filing for bankruptcy individually may still have consequences for your spouse. Affecting factors include whether or not you and your spouse have joint property or debts, whether you file for Chapter 13 or Chapter 7 bankruptcy, and what the property laws are in the state in which you reside.

Individual and Joint Debt

Poor-Couple-Illinois

Make sure to speak with your spouse and discuss how filing for bankruptcy will affect them.

Joint debts are handled differently than individual debts. The individual debt of one spouse who files for bankruptcy will be discharged; the other spouse’s debts remain unaffected.

When a husband and wife share debt, as in joint debt, the spouse who files is equally responsible for the repayment of that debt as the non-filing spouse. Although one spouse’s debt is discharged, the debt may appear on the other spouse’s credit report.

Illinois bankruptcy laws allow spouses who file bankruptcy jointly to claim a set of exemptions. In Illinois, exemptions can be described as personal property, such as condos or farms, motor vehicles and health or disability benefits, among others.

Filing bankruptcy jointly will increase the number of exemptions the married couple can claim. As a result, the trustee assigned to your bankruptcy case has no power to put your property up for sale.

Credit

A wife’s credit will remain unaffected when a husband files for bankruptcy without her. As mentioned, a joint debt will cause the bankruptcy claim to make an appearance on the non-filing spouse’s credit report.

Creditors will be apprised of your bankruptcy filing and can pursue joint debts from the non-filing spouse.

In Illinois, the act of filing for bankruptcy can continually appear on you and/or your spouse’s credit record for an entire decade.

Property

Individually owned property is unaffected in a bankruptcy filing. Property that is jointly owned will be affected by filing for bankruptcy; and, the determining factors are whether or not you live in a common law property state or a community property state. Illinois is a common law property state, which means marital property is not evenly divided.

Common law property states recognize properties acquired during a marriage as solely belonging to the spouse who purchased it—unless the name of the spouse is added to the title. For example, when a husband buys a yacht or a new car and adds only his name to the title, that property belongs exclusively to him in a common law property state.

Referring to this same example, a community law property state considers the yacht or new car to belong to both marital partners, regardless of whose name is on the title.

When a wife files for bankruptcy in a common law property state, the husband’s physical assets that are solely in his name remain unaffected.

In a community law property state, the property of both spouses is affected when either file for bankruptcy. This is because the community property (including earned income) belongs equally to both spouses and these assets can be used to satisfy bankruptcy debts.

Creditors

Creditors can attempt to collect joint financial obligations from a spouse when the other spouse files for bankruptcy. Plus, filing for bankruptcy does not prevent the other spouse from having to pay back his or her individual or joint debts.

Both spouses may receive collection calls, even if one spouse owes the debt. A marital partner who does not owe the debt can take steps to stop the unwanted collection attempts in three ways:

  • First, acquire proof of responsibility for the debts from the collection agencies.
  • Second, once the spouse has filed for bankruptcy, the other spouse can request an automatic stay from the bankruptcy court. The automatic stay should stop the collection calls.
  • Third, if an automatic stay is granted, the spouse without the debts should notify the collections agency of the bankruptcy filing and request all collections activity be stopped. A bankruptcy lawyer can also work on your behalf to halt collections communications.

As indicated earlier, Illinois is a common law property state, meaning the filing spouse’s debts are discharged in bankruptcy, but the non-filing spouse’s unpaid obligations are not. Creditors can continue to pursue the owing spouse.

Codebtor Stay

The codebtor stay protects codebtors, like a spouse, from creditors when a Chapter 13 bankruptcy is filed. The stay stops collections agencies from harassing the non-filing spouse.

However, creditors may make a request to the bankruptcy courts to lift the codebtor stay. Such a demand is normally made when the debtor fails to repay the joint debts as outlined in the repayment plan.

Work with a Bankruptcy AttorneyBerry-K.-Tucker-Divorce-Lawyer-Oak-Lawn-IL

Married couples have the option to file for bankruptcy without their spouse. Joint bankruptcy filing is not mandatory under any laws. A knowledgeable bankruptcy lawyer will empower a husband and wife team to achieve their financial goals. The bankruptcy attorneys at Berry K. Tucker & Associates, Ltd. are positioned with the legal expertise and knowledge to help navigate couples on the brink of bankruptcy through their many options.

Whether you and your marital partner are inclined to file for Chapter 7 or Chapter 13 bankruptcy, the skilled bankruptcy attorneys at Berry K. Tucker & Associates, Ltd. have the experience with both forms to offer expert legal advice. Filing for Chapter 13 bankruptcy is a complex process. A skilled bankruptcy lawyer can streamline following this route, should it be the most beneficial.

With 50 years of experience in bankruptcy proceedings, the Berry K. Tucker lawyers will negotiate on your behalf with loan companies if your car is repossessed; we will advise you on the best course to take when you are overwhelmed with credit card debt; our medical debt bankruptcy attorneys will offer you legal options in regard to medical debts; and we will fight for you when you are faced with a home foreclosure.

Serving Oak Lawn, IL and Surrounding Areas

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The Berry K. Tucker & Associates, Ltd. bankruptcy lawyers serve the Oak Lawn, Illinois, community and surrounding areas. Consult the legal experts to help you decide if filing for bankruptcy is right for you and your spouse.

Contact Us

To speak with a professional bankruptcy attorneys at Berry K. Tucker & Associates, Ltd., give us a call at (708) 425-9530 or fill out a contact form.

How Bankruptcy Affects a Cosigner

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Major life events can trigger a bankruptcy. Divorce, illness, or losing a job may push people to the brink of financial ruin. Bankruptcy offers a strategic path out of financial disaster. Individuals, spouses and corporations can file for bankruptcy. Federal courts handle all bankruptcy cases in accordance with the US Bankruptcy Code.

Bankruptcy Classifications

Chapter 7Bankruptcy-Coins-on-Desk-Calculator-Reviewing-Documents

Bankruptcy falls into two primary classifications for individuals: Chapter 7 bankruptcy and Chapter 13 bankruptcy. The former, Chapter 7 bankruptcy, wipes out certain debts completely, giving debtors the chance to start anew, without the burden of repaying debts.

Be aware that Chapter 7 bankruptcy discharges only certain forms of debt. Such debt includes medical bills, credit card balances, and personal loans. Non-dischargeable debt falls under such categories as income tax acquired over the past three years or more, student loan debt, and child or spousal support.

Chapter 13

Chapter 13 bankruptcy requires the debtor to repay a portion of the incurred debt. The debtor has an obligation to develop a repayment plan and to repay monetary dues over the course of 3 to 5 years. Factors that affect the minimum payment amounts include how much income is earned, the value of the individual’s nonexempt property and the sum of money owed.

Debt limits exist in Chapter 13 bankruptcy cases. Those eligible for filing for Chapter 13 bankruptcy cannot have over $1,081,400 (figure is as of 2018) in secured debt. Secured debts include any purchased items, like boats, houses and vehicles, that are linked to property.

The Role of the Cosigner

Qualifying for a loan may require a cosigner. The critical role of the cosigner is to repay any part of the debt that goes unpaid. First time borrowers, those with poor credit histories and people who are starting new businesses almost always experience obstacles when attempting to secure funding. Loans are acquired more readily when a cosigner signs the dotted line—giving the lender assurance that the loan will be repaid. Cosigners are those who earn higher incomes, who possess good credit and who own greater assets.

Unsecured loans are not associated with collateral, such as property. Examples of unsecured loans are credit card debt, personal loans, and student loans. Unsecured loans pose as a greater risk for lenders. The increased risk prompts the lender to require a cosigner prior to offering borrowers an unsecured loan.

In the unfortunate event a debtor must file for bankruptcy, the part of the cosigner comes in. Cosigners are just as affected by a bankruptcy as the debtor. A cosigner is legally the co-debtor and is responsible for repaying the debt as the borrower. Should the amount of debt owed exceed what a cosigner is able to repay, as in the worst scenario, the cosigner may also struggle with the decision to file for bankruptcy.

Cosigner Protection

Chapter 13 Bankruptcy—Codebtor Stay

A borrower can make efforts to protect a cosigner by filing for Chapter 13 bankruptcy. Cosigner debts are often discharged under Chapter 13 bankruptcy proceedings. Chapter 13 bankruptcy allows the debtor to repay the loan, thereby protecting the cosigner.

The Chapter 13 codebtor stay provides protection to the cosigner. Once bankruptcy is filed, creditors cannot take actions to recoup the loan. Simultaneously, a stay is also placed on the cosigner in a Chapter 13 bankruptcy filing. The codebtor stay prevents creditors from collecting from the cosigner. The cosigner is protected until the courts reach a final decision in the bankruptcy case.

Under certain circumstances, creditors can request the courts to lift the codebtor stay. Instances when a lender can request the courts to remove the codebtor stay include when the cosigner benefits from the debt instead of the creditor, when the creditor’s interests are harmed if the codebtor stay remains in effect and when the debtor, under the Chapter 13 bankruptcy repayment plan, fails to repay the debt.

Cosigners can qualify for a codebtor stay: The cosigner must be an individual, not a corporation; and, the debt for which a cosigner signed should be consumer debt and unrelated to business debt.

Failing to repay the debt under a Chapter 13 bankruptcy could jeopardize the cosigner’s protection under the codebtor stay, especially if the debt is not discharged. In such a case, the creditor has the right to pursue the outstanding debt from the cosigner.

Chapter 7 Bankruptcy—Repaying & Reaffirming Debt

When filing a Chapter 7 bankruptcy, all collections against the filer stop. Collectors, however, are free to collect the unpaid debts from the cosigner. A debtor can protect the cosigner by voluntarily paying off the debt in the event of a Chapter 7 discharge.

Reaffirming debt in a Chapter 7 bankruptcy also protects the cosigner. By once again becoming liable for the original debt before the debt is discharged, the cosigner can no longer be pursed for the money owed. Possessions such as jewelry, computers and furniture can be returned if the purchase cost remains unpaid.

Work with Bankruptcy Attorneys

In the unforeseen event you file for bankruptcy, either Chapter 7 or Chapter 13, make sure you are represented by highly qualified, experienced bankruptcy attorneys. Financial interests are heavily at stake. The bankruptcy attorneys at Berry K. Tucker & Associates, Ltd. are skilled negotiators, who will help you under numerous Chapter 7 bankruptcy scenarios, including vehicle repossession, medical debt, credit card debt, and home foreclosure judgements.

Our qualified team of bankruptcy lawyers will also see you through Chapter 13 bankruptcy cases, assisting you with developing a workable repayment plan.

Knowledgeable in all current Illinois laws surrounding bankruptcy, the attorneys at Berry K. Tucker & Associates, Ltd. will expertly guide you through the complicated bankruptcy process when you elect to file. Our team of bankruptcy lawyers offer professional, legal advice that will help you navigate the complex bankruptcy filing proceedings.

Schedule a Consultation

Berry K. Tucker & Associates, Ltd. is committed to serving the legal needs of individuals who are considering filing for bankruptcy and who reside in Oak Lawn, IL or its surrounding communities.

To schedule a consultation with one of our experienced attorneys, give us a call at (708) 425-9530.

Filing Bankruptcy to Prevent Foreclosure

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Filing for bankruptcy in order to save your home from foreclosure may sound too good to be true – but it’s not! Bankruptcy cannot only stop foreclosure threats, but end debt collector harassment, allowing borrowers extra time to make up for the missed payments and review their financial situation. For some situations, filing for bankruptcies can also help those who have mortgages save their homes completely.

What to Keep in Mind Before Filing for Bankruptcy

Filing for bankruptcy can prevent a home foreclosure but it is not the solution to all problems. Be sure to check out these conditions.

Just because bankruptcy can save homeowners from foreclosure, it is not the solution to all problems. The exception is that if the homeowner does not have enough money to make the payments, bankruptcy will not save them.

But for homeowners that have ongoing income and are able to make payments, filing bankruptcy would be an ideal solution.

Preventing Foreclosure

After filing bankruptcy, the first and most important step is to put the foreclosure process to a halt. Legally, lenders are not able to foreclose or even try to collect the debt from the borrower without the permission from the court.

Two Types of Bankruptcy

There are multiple chapters of bankruptcy, but Chapter 7 and 13 are among the most common.

Chapter 7. This type will delay the foreclosure process, but not prevent it. In most cases, most assets will be liquidated and almost always ends in the owner losing their home.

Despite this downside, some bankruptcy attorneys recommend Chapter 7 because it gets rid of all unsecured debt, leaving behind secured debt, such as mortgages. This allows homeowners to start with a clean slate, so they can then afford to pay other debts.

Chapter 13. Preferred by many professionals, this type of bankruptcy is more effective when it comes to allowing borrowers to keep their homes. They are given more time to review and fix their financial situation, around 3 – 5 years, while given an income-based budget to make monthly payments to trustees.

The trustees then use the money to pay bills, starting with the secured debt, then the unsecured debt, including credit cards and medical bills. But after this, there’s little to no cash left, so they are paid off at a low percentage of the full rate.

But as long as they keep up on their payments, borrowers are able to come back from bankruptcy and still keep their homes.

The Powers of the Courts

While the courts have significant power, they are not allowed to reduce the mortgage debt to the net worth of the home. They are also not able to lower interest rates or lengthen the term of the mortgage.

On the other hand, they can remove second mortgages, such as lines of credit or home equity loans, as long as the net worth of the home falls below the first mortgage balances.

For borrowers, this is a big relief. For example, a homeowner may have $300,000 balance on the first mortgage and $75,000 from the home equity loan. During the time that the homeowner was unable to make payments, the home’s value dropped below $300,000, the court may rule that the $75,000 is unsecured debt. This allows the home equity loan to be paid off at a significantly lower rate than the original $75,000.

Keep in mind there are other downsides. Filing for bankruptcy can knock off as much as 240 points from a credit score. They can also stay on the reports for 10 years, while other problems disappear after 7 years or less.

Tax Advantage During Bankruptcy

Yet another pro of filing for bankruptcy compared to undergoing foreclosure. If the home is foreclosed and the lender forgives the remaining balance of the mortgage above the market value, there is a tax liability. If there is a difference between what borrowers borrow and what they pay, it is considered income in the eyes of the court.

Although Congress is temporarily allowing this unpaid debt to be forgiven, this is only for the money that was specifically spent on the home; it doesn’t not cover any additions, remodeling, or improvements.

Free Money is Still Taxable

It’s common for homeowners to refinance mortgages and take out additional home equity loans to pay for other things, like college tuition, fancy vacations, and nice cars. But the kicker is that the money is still taxable.

In the case of foreclosures, say if a homeowner had purchased a home for $1 million but had taken out another loan for $2 million, most of which is not spent on the house, the money is taxable. But if the homeowner files for bankruptcy right afterwards, the deficiency is discharged. That’s the key.

Filing for Bankruptcy

While not for everyone, filing for bankruptcy has saved many American homeowners from losing their homes. As it provides them with a “fresh start,” they are able to focus their payments strictly on their mortgages.

But before filing, it is crucial to meet with a bankruptcy attorney to ensure that this is the best option for you. The last thing you will want to do is file and find out that you still have to undergo the foreclosure.

Simply meeting with an experienced bankruptcy attorney can provide a lot of relief to your situation. They can review your documents and options while discussing the best plan of action according to your specific situation.

When it comes to providing tailored solutions, the bankruptcy attorneys at Berry K. Tucker & Associates, Ltd. not only have years of experience, but have worked with

diverse cases. When meeting during the initial consultation, we will listen closely to each detail while applying our knowledge of updated laws in order to reach a solution that works in your best interest.Cheri-Costa-Family-Child-Custody-Attorney-Oak-Lawn-IL

Schedule Your Consultation

For more about filing bankruptcy or determining whether it is the best option for you, contact the bankruptcy attorneys at Berry K. Tucker & Associates, Ltd. at (708) 425-9530 to schedule your initial consultation. We proudly serve the residents Oak Lawn, IL and the surrounding areas.

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