FAQ: Is Bankruptcy right for you?

rajneet

Company Director, EA
Staff member
Filing for bankruptcy can be a tough, grueling process. People often find themselves feeling ashamed for landing in a situation that forces them to declare bankruptcy. Although filing for bankruptcy may have a negative connotation, it can be a good way to clear out old debts, improve financial habits, and most importantly get a fresh start. Here is everything you need to know about filing for bankruptcy.
Who Should File for Bankruptcy?

If you owe money to a creditor and cannot repay it, you are eligible to file for bankruptcy! While both businesses and individuals are eligible to file, there are limitations and conditions that must be followed. For example, if you have filed for bankruptcy once before, there is a waiting period before you may file again. Another condition is that if you file for Chapter 7 bankruptcy, you cannot claim bankruptcy again for eight years. After filing for Chapter 13 bankruptcy, you must delay a second claim for at least two years.

What Types of Debt Can I Discharge Through Bankruptcy?

You can discharge most types of debt through bankruptcy, including medical debt, credit card debt, payday loans, and mortgage debt. Certain types of debt cannot be discharged through bankruptcy, meaning that you will still need to repay these debts even if everything else is forgiven. Generally speaking, spousal support, child support, student loans, and back taxes are some of the types of debt that cannot be discharged through bankruptcy. Any debt you accumulate after you've filed for bankruptcy is ineligible to be discharged through the filing, since you did not have the debt when you asked for debt relief.

Why is Filing Bankruptcy Helpful?

Bankruptcy is never a first option for people. Many have tried finding a second job, selling unwanted possessions, or asking friends and family for financial assistance. Ultimately, filing for bankruptcy is the best option to resolve debts for many people. By clearing debts, bankruptcy reduces stress immediately. Collectors are forbidden from coming after individuals who are experiencing bankruptcy. This regulation means that the threatening phone calls and letters will end immediately!

A Chapter 13 bankruptcy can encourage individuals to improve their financial habits as this form of bankruptcy requires paying back debt under a payment plan. By helping to increase financial literacy and instilling good financial habits, this partial repayment can keep people in the black once debts are discharged.

The biggest downside to filing for bankruptcy is that it impacts your credit. As a result, it may be difficult to take out loans for up to ten years after the bankruptcy. Your credit score also impacts factors such as the interest rate offered on loans and your ability to pass a tenant screening, so there are other ramifications to consider.

If you're not sure whether a certain debt will be forgiven or which type of bankruptcy is right for you, there are resources to help you explore your options, such as credit counselors! If you are thinking of filing for bankruptcy, it's helpful to get a counselor's opinion on your specific circumstances and what to expect after filing.

If you have back tax debt, we highly recommend readers to reach out to our firm first. At Lifeback Tax, our clients never have to talk to the IRS! Tax resolution through our firm can save you money and time in the long run. You might also be eligible for other IRS relief programs or get your penalties reduced or removed. Reach out to our firm today for a consultation.

Depending on what type of taxes you owe, you might not be able to clear your back taxes in bankruptcy proceedings. LifeBack Tax specializes in tax resolution and back tax debt settlements with the IRS. If you’re considering filing for bankruptcy in part because of your back tax burdens, reach out to us today at (855) 605-1500 for more information on how you can get tax relief.
 

rajneet

Company Director, EA
Staff member
Filing bankruptcy at any point can have a drastic negative impact on one's credit. If you can fix your IRS tax debt without Bankruptcy, that would be the best way to do it.
 

MarcoMadrid

New member
I had a bankruptcy that ended 3 years ago. I tried to refinance my house to a lower interest rate but they told me I had a lien with the State of California. I filed the bankruptcy to get rid of the tax debt, but its still there! Is there anything that can be done?
 

rajneet

Company Director, EA
Staff member
I had a bankruptcy that ended 3 years ago. I tried to refinance my house to a lower interest rate but they told me I had a lien with the State of California. I filed the bankruptcy to get rid of the tax debt, but its still there! Is there anything that can be done?
Hey, Marco! First off, welcome to the forum. We're glad to have you here. :)

To answer your question, filing bankruptcy does not necessarily absolve you of all debt. Your best bet would be to get in contact with a tax professional who understands the tax rules & regulations. A professional can help you determine the best resolution for your case and negotiate with the IRS on your behalf.
 

jakeNrake

New member
If I am on the board of a company that files for bankruptcy, will my personal credit score be effected by a chapter 13 of an LLC? Anyone know?
 

rajneet

Company Director, EA
Staff member
If the company files for bankruptcy, generally you should not be liable because the company has filed for BK. I would recommend seeking the help of bankruptcy attorney to help you further.
 
Top