You can file for chapter 7 bankruptcy if your income-related resources are minimum, a significant portion of the debt is unsecured, and it doesn’t seem possible to pay back the loan.
Chapter 7 bankruptcy is also known as liquidation bankruptcy. That means the court will dissolve your assets to pay back the loans.
After dissolving the assets, the court will forgive your pending debts. Thus, bankruptcy provides the much-needed relief. You cannot pay back the loan if the interest rate keeps increasing and you’re barely paying the interest rate each month. Filing bankruptcy chapter 7 gives you a fresh start and you can re-start your financial life. However, this relief comes at a cost.
Bankruptcy Chapter 7 Process in Connecticut
The eligibility criteria require that:
- You pass the mean income test.
- You have accumulated unsecured debts.
- If your income is above than the median household income, factor in your expenses. If the leftover sum isn’t enough to pay back at least 25% of unsecured debt than you qualify for chapter 7 bankruptcy.
- You haven’t filed for bankruptcy chapter 7 in last 8 years.
- You have passed the mandatory credit counseling session.
You must pass the means test. Bankruptcy chapter 7 is only available to you if your income is less than the median household income in Connecticut. That means, for a household of your size, you’re earning less than the median income compared to other families. If your income is below that point, you can initiate the bankruptcy process. However, if you’re earning more than the median household income than the trustee in the court will review your case. Another option is bankruptcy chapter 13 which requires you to pay back a portion of your debts.
Mandatory Credit Counseling
Bankruptcy is not the tool to discharge secured debts. That’s why filing for bankruptcy won’t stop the property foreclosure.
The mere act of filing bankruptcy can prevent the creditors from contacting you. Sending the bankruptcy application can bring you the needed time to sort out things. However, here is the tricky part.
Before you file for bankruptcy, you must go through a mandatory credit counseling session. Only after the credit counseling fails, you can apply for bankruptcy. This step is mandatory, and it doesn’t matter which type of bankruptcy process you’re using.
Credit counseling involves a detailed session with an approved financial counselor. He/she will review your case and will suggest ways to get out of the debt. You’ll receive basic and advanced information related to saving, budget making, credit scores and dealing with money. You’ll need to pass an exam after the session is over. There is another credit counseling session required after your debts are discharged through bankruptcy. That counseling session educates you about further steps, so you don’t get in debt again.
Bankruptcy as a Way to Stop Foreclosure
As mentioned earlier, filing for bankruptcy chapter 7 is a weak attempt to postpone the foreclosure. It will only buy you the time.
If you want to keep a secured asset while filing bankruptcy, you must re-affirm that loan. For example, if you want to keep your home, you must assume the mortgage. However, you must bring your loan current. You’ll sign an affidavit that confirms that you want to keep the house and you’ll pay back the mortgage. The affidavit further states that you cannot file for bankruptcy for that particular loan again.
Be careful at this stage. Ensure that you have the financial means to pay back your mortgage.
Bankruptcy can help you eliminate your debts. You’re filing for bankruptcy so that you can sort out your life without worrying about the pending debts. Filing for bankruptcy also creates a hole in your credit report which will stay for ten years. At this stage, you cannot afford a foreclosure.
Review your financial situation. It might be better not to assume the mortgage. The trustee will sell the non-exempt assets. You get to keep exempt assets. In Connecticut, you can choose to avail federal bankruptcy exemptions or state bankruptcy exemptions. The state exemption allows you to have:
- Home equity worth $75,000 (Only applicable for your primary residence)
- Personal property worth $1,500 including vehicle and other personal items
- Cash savings: 40 times of state hourly wage or 75% of your earned but not paid income.
- Public benefits
For complete details, please contact a bankruptcy attorney.
If you’re thinking to file bankruptcy to save your house, please contact us. Bankruptcy can be a good option, but it has its pros and cons. Contact an attorney and a reputable real estate company before making a decision.