More people every day are headed to Bankruptcy Court seeking relief from overwhelming debt. If you are buried under debt, filing for Chapter 7 bankruptcy, the primary type of bankruptcy available to individuals, may or may not solve your problem. It depends on, among other things, your income and type of debt you have. Here are a few questions to ask a bankruptcy attorney.
Is it possible to have an income too high to qualify for bankruptcy?
Yes. In 2005, a means test was added to the Bankruptcy Code. It requires you to prove your income for the six months prior to the bankruptcy filing was below the state median income. The median income for each state is the amount of income a family has in relationship to all other families in the state. Fifty percent of the families will have income higher than the median and 50 percent will have incomes lower than the median. Median income level varies by state. Ask the bankruptcy attorney what the median income is for your state. If your income is above the median, you likely will not be able to file for Chapter 7 bankruptcy.
Are there any debts I will still have after the bankruptcy proceeding is over?
Yes. There are some debts that are not discharged and that you will still owe after the bankruptcy is over. Collection for these debts will be suspended during the time the bankruptcy proceeding is pending, but when it is over, you will still owe:
Alimony and child support that are in arrears.
Past due income tax unless it is more than three years old..
Student loans, unless you can jump over a high hurdle and show you will suffer an “undue hardship” if the debt is not discharged. This is very difficult to do.
Fines and penalties imposed due to violations of the law.
Any debt incurred due to a drunk driving conviction.
Any debt you forgot to list on your bankruptcy papers.
A bankruptcy attorney can tell you if your case falls into any exceptions that may allow some of the above debts to be discharged and what extra steps may be required in order for that to happen.
How seriously will a bankruptcy filing affect my credit rating?
The clear answer to that question is: it depends. For people who have a low credit score anyway, filing for bankruptcy has very little impact. Those who have maintained a higher credit score will likely feel an immediate impact of a drop in their score of approximately 150 points. The good news is that the drop seems to be temporary. After the completion of the bankruptcy, you will no longer be getting past due notices and late charges. Within about 12 months, your score will likely increase.
It is true that a bankruptcy filing stays on your credit score for up to 10 years. As you get further from the filing date, it will become less of a problem