Bankruptcy filings are up 40-50% from last year.
Most bankruptcies that I handle involve credit card debt. Oddly, many clients are current on their credit cards. But, the card balances have crept up over time to $10,000 or more, some in excess of $100,000.00 total.
The interest rates on the cards initially were 2 or 3 percent, but many clients reported that the rates skyrocketed to 25 percent or more. Most clients were paying the minimum and couldn’tt afford to do that anymore.
In order to get a fresh start, they decide to file chapter 7 to discharge the credit card debt.
Passing the means test
The bankruptcy laws changed in 2005. There is an income limitation on filing chapter 7. This is called the “means test.” If you pass the means test, then you can file chapter 7. If you don’t pass it, you must file chapter 13, which involves repaying creditors over 3 or 5 years.
Almost all clients want to file chapter 7, not chapter 13.
If you would like to see if you pass the means test, please set up a phone or office appointment.
What property can I keep?
In a chapter 7 bankruptcy, the law allows you to keep certain “exempt” property. Some of the exemptions are:
- $15,000.00 in equity in your home.
- All IRAs, 401ks and retirement benefits.
- Car value of $2400.00
- Any personal property of $4000.00 or less (called the “wildcard”)
Effect on credit
Some clients who file chapter 7 have good credit of more than 700 (FICO). Most do not have good credit and have FICO scores of 530 or so.
If you have good credit, the bankruptcy filing will lower your credit score significantly. It is possible to obtain a mortgage about three years after a bankruptcy filing.
If you have poor credit, a bankruptcy filing may slightly improve your credit score since all of the delinquent debt will be gone.
Please set up a phone or office appointment for a consultation if you would like to discuss bankruptcy as an option.
