BANKRUPTCY AND RELATED TERMS at IOB

What is BANKRUPTCY?

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Overview

It’s designed to help individuals and businesses eliminate all or part of their debt or to help them repay a portion of what they owe. Bankruptcy may help you get relief from your debt, but it’s important to understand that declaring bankruptcy has a serious, long-term effect on your credit.

Frequently Asked Questions

What’s the benefit of bankruptcy?

Filing for bankruptcy will trigger an “automatic stay” — the automatic stay stops creditors from taking action to collect their debts, and stops creditors from repossessing property such as cars, and personal property. It also prevents creditors from calling you, suing you, or sending you letters.

Are there any advantages to bankruptcy?

By far the most important advantage is that debtors may obtain a fresh financial start. Consumers who are eligible for Chapter 7 may be forgiven (discharged from) most unsecured debts.

Why would you want to declare bankruptcy?

Some common reasons for filing for bankruptcy are unemployment, large medical expenses, seriously overextended credit, and marital problems. Chapter 7 is sometimes referred to as a “straight bankruptcy.” A Chapter 7 bankruptcy liquidates your assets to pay off as much of your debt as possible.

What do you lose if you file bankruptcy?

Filing Chapter 7 bankruptcy wipes out most types of debt, including credit card debt, medical bills, and personal loans. Your obligation to pay these types of unsecured debt is eliminated when the bankruptcy court grants you a bankruptcy discharge.

What debts are not erased in bankruptcy?

401k loans. Other government debt such as fines and penalties. Restitution for criminal acts. Debt arising from fraud or false pretenses.

How many years is bankruptcy on your credit record?

A Chapter 7 bankruptcy can stay on your credit report for up to 10 years from the date the bankruptcy was filed, while a Chapter 13 bankruptcy will fall off your report seven years after the filing date. After the allotted seven or 10 years, the bankruptcy will automatically fall off your credit report.

Do you get out of all debts if you declare bankruptcy?

While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.

Is there a cost to bankruptcy?

There is a financial cost to bankruptcy and it’s different for every person who goes bankrupt; that’s because the government has decided that, the more you earn and the more you own, the more you have to pay to your creditors.

Can I get an 800 credit score after bankruptcy?

Keep your balances low or at zero and pay on time. Though it will take a few years to achieve an 800 credit score after bankruptcy, you can begin to rebuild your credit successfully.

Is it true that after 7 years your credit is clear?

Highlights: Most negative information generally stays on credit reports for 7 years. Bankruptcy stays on your Equifax credit report for 7 to 10 years, depending on the bankruptcy type. Closed accounts paid as agreed stay on your Equifax credit report for up to 10 years.

Can you file bankruptcy just on credit cards?

While credit card debt is a major reason people wind up filing for bankruptcy, you cannot file for bankruptcy on credit card debt alone, as the law requires that all your debts be listed in the bankruptcy documents.

How much do you pay monthly for bankruptcies?

If the family income is greater than the amount on the Standards, the bankrupt is required to pay 50% of the EXCESS. For example, if you earned $400 more each month than the Standards indicate is necessary, you would be required to pay 50% or that, or $200 per month.

What is the most common reason people end bankruptcy?

​​​A study published in the American Journal of Public Health in 2019 found that 66.5% of bankruptcies in the U.S. were due to medical issues like being unable to pay high bills or due to time lost from work.

What are the 4 main causes of bankruptcy?

Since 2005, commonly reported causes of bankruptcy include reduced income, job loss, credit debt, illness/injury, unexpected expenses and preparing for divorce.