For most Nebraskans, facing bankruptcy is a last resort; the last option when all other avenues to resolve their unpaid debt have been exhausted.
Bankruptcy is the process that’s initiated when an individual or business cannot repay their outstanding debts. The bankruptcy process begins when the debtor files a petition with the bankruptcy court serving the area where the individual lives. Although bankruptcy filings are down significantly from their peak in 2010, following the housing bust, there were still over 750,000 bankruptcy filings in 2018. And out of those filings, a large portion of them was attributed to older Americans who are wrestling with too little income and rising healthcare costs.
Top reasons for bankruptcy
There are many reasons that fair and honest people are facing bankruptcy, many of them not their fault. The top 10 reasons for bankruptcy are:
Medical expenses (62% of bankruptcies!)
Regardless of your personal reasons, facing bankruptcy is stressful and can impact your credit, taxes, and livelihood for years to come. As a result, navigating a bankruptcy can often be confusing, and having guidance and support is essential. Therefore, the first step in dealing with a bankruptcy is to understand the bankruptcy process and what your options are.
There are several types of bankruptcy, including Chapter 7, Chapter 11, and Chapter 13. Chapter 7 and Chapter 11 bankruptcy deal directly with individuals, while chapter 11 deals with businesses and small corporations.
Types of Bankruptcy
Chapter 7 is the most common and simplest form of bankruptcy; it is also called “straight bankruptcy.” Its the type of bankruptcy most people think about when they hear the word “bankruptcy”. Chapter 7 of the bankruptcy code provides for liquidation, or sale, of the debtor’s property and the distribution of proceeds to creditors. Consequently, a trustee assigned to your case, will ensure that your creditors who file a proper claim will receive a portion of your liquidated assets.
Chapter 13 of the bankruptcy code enables individuals to plan the repayment of their debts. Some of these debts have to be paid in full; these are called priority debts. For example, priority debts include alimony, tax obligations, child support, as well as wages owed to employees.
Your plan will be determined by how much you owe and what kind of income you have. The plan will define how much you pay and when it needs repaid.
Chapter 11 of the bankruptcy code is for companies. Chapter 11 directs the company to come up with a reorganization plan for its business and finances.
How does bankruptcy affect my credit?
Bankruptcy takes a major toll on your credit. In general, Chapter 7 and 11 bankruptcies remain on your credit report for ten years, and a Chapter 13 bankruptcy stays on your credit report for seven years.
What happens to my home in bankruptcy?
In Chapter 7 bankruptcy, you are allowed to keep your home with some provisions. Most importantly, you must be current on your mortgage payments when you file for bankruptcy and must be able to remain current going forward. Consequently, a provision called the Homestead Exception protects the individual filing for Chapter 7 bankruptcy. The Homestead Exception preserves a specified amount of equity in your home or permanent residency. This exception can only be claimed on one property, and in most circumstances, this must be your permanent residency.
Each state has its unique requirements for Homestead Exception. For example, Nebraska has geared its exceptions towards families and those over 65 years of age. You can protect up to $60,000.00 of equity, but you need to be at least 65 years old or married, single and raising children, and live in your house.
What are your options?
1. Negotiate with your lender before bankruptcy
There is a possibility that you can negotiate the terms of your mortgage through what is called the ‘mortgage workout.’ This process entails the mortgage lender modifying the terms of the loan or refinancing the loan.
2. Consider Chapter 13 bankruptcy
If you’re behind on your payments but have gotten your head above water, think about developing a plan for repayment through Chapter 13 bankruptcy.
3. Sell your house fast with a home buying company
The best option for some homeowners who need to pay off debts and avoid the credit hit is to sell to a cash home buyer like Nebraska Home Solutions.
At Nebraska Home Solutions, we strive to create a win-win solution for homeowners trying to avoid bankruptcy or are already in chapter 7 or 13 bankruptcy. We’ll give you a fair cash offer for your home, and there is never any obligation to sell. We encourage you to explore your options and fill out our online form or call us at (402) 704-8026.
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