Written by Katie Jarvi, Attorney
Creditors knocking down your door? Get ready for them to knock louder at tax time. Creditors know that many of us experience an influx of cash in the form of a tax refund, and they’re waiting to pounce on that windfall. If you’ve been considering bankruptcy—or even if you’re just overwhelmed with debt and aren’t sure what to do—read on. You may have a way out.
Think filing bankruptcy should be your absolute last resort? Depending on your circumstances, it might be time to rethink. Chapter 7 bankruptcy is a viable option for many people facing crippling debt. Unlike other forms of debt relief, in most cases Chapter 7 allows you to hold onto your primary assets. That means you may be able to climb out from under the burden of debts without sacrificing your home, your car, or other valuable personal property.
Unfamiliar with Chapter 7 bankruptcy? It’s a type of bankruptcy in which you may release all the debt entitled to discharge under the law. It’s a potential option for people whose income isn’t sufficient to address outstanding debts. What kind of debts? Think: credit card balances, medical bills, etc. It may also be appropriate if you’ve experienced a previous foreclosure or repossession that is still plaguing you. It’s important to note that Chapter 7 bankruptcy generally doesn’t apply to student loans, some secured loans, and some (but not all) types of taxes.
While Chapter 13 bankruptcy necessitates repayment plans, Chapter 7 does not. In the case of a court-approved Chapter 7 bankruptcy, your debt goes away. Of course, while this all sounds magical, there’s more to it than that. Chapter 7 bankruptcy isn’t for everyone, and that’s why it’s so critical to obtain counsel from a qualified attorney who can review your individual case, make recommendations, and—if applicable—guide you through the bankruptcy process.
At Johnson/Turner Legal, we know no one comes to bankruptcy lightly. It’s a scary, vulnerable time for most people. That’s why we offer free, no-obligation consultation sessions to evaluate your circumstances.
Here are a few things you should know if you’re considering bankruptcy: For starters, not everyone will qualify. Anyone wanting to file a Chapter 7 bankruptcy is subject to a “means test” to determine if a bankruptcy filing is reasonable given income levels and other financial circumstances of the case. In addition, while most people can hold onto their assets with a Chapter 7 bankruptcy, having a bankruptcy on your record is not without consequences. A Chapter 7 bankruptcy stays on your record for 7-10 years and you’ll need to put in some effort to rebuild your credit score. If you’re looking at a major life transition such as purchasing a home, you should know that a history of bankruptcy is likely to impact the process. Many lenders require a waiting period.
We can answer any questions you have throughout the process, starting with the consultation. If we determine that filing for Chapter 7 bankruptcy makes sense for you, we’ll make it simple. We prepare paperwork for you to fill out for your petition, and then we’ll walk through everything with you so you can sign off. We usually file a petition the same day you sign off. After about 30 days, we attend a Meeting of Creditors. You’ll be asked a series of questions about your petition, but we’ll have provided those questions in advance so you won’t be caught off guard. Approximately 60 days later, if approved, you’ll receive a bankruptcy discharge from the court stating that you’re no longer obligated to pay the debts. During the process, you’ll be required to complete two credit counseling courses: one before you file the petition, and one after you file. Johnson/Turner Legal has a service that makes it very easy for your course completion certificate to be automatically sent to us. There is a filing fee and commonly miscellaneous administrative fees associated with the process, and Johnson/Turner Legal charges a reasonable flat fee depending on the complexity of your situation. The entire process usually takes between four and six months.
Here’s what you can do right now:
- Ensure your tax refund is paid via check instead of direct deposit. Consider cashing it out right away and storing it securely rather than leaving it in your bank account where a creditor can access it.
- Contact Johnson/Turner Legal for a free, no obligation consultation.
Again, every situation is different, and we can make an informed suggestion once we know your story. We encourage everyone facing debilitating debt to seek a consultation before taking other drastic measures such as liquidating retirement funds to stave off creditors. You may be able to release your debt without losing everything you’ve worked for. And don’t forget—if you’re counting on a tax refund to help ease the burden temporarily, be prepared for that refund to get snapped up by the hungriest creditor.
Bankruptcy is very common, and there’s no reason for shame. Life happens. We’re here to help.