Bankruptcy chapter 7, also known as liquidation bankruptcy, is used to discharge unsecured debts. You can file for chapter 7 if you have a house in the pre-foreclosure phase. It is possible to wipe out your secured debts, given bankruptcy is your last option.
When your home is in the pre-foreclosure phase, filing bankruptcy can stop creditors from contacting you. The lenders will have to stop their attempts to collect payments from you. While this can work, you must be eligible for filing bankruptcy chapter 7 in Utah. If you don’t qualify, you cannot take this step.
Before you file for chapter 7 or chapter 13, you’ll need to undergo mandatory credit counseling within six months of sending your application. That’s why you cannot just file bankruptcy to stop the foreclosure. The process has to be in place; otherwise, submitting the form won’t help you save your house.
You’ll have to pass a means test before the court can proceed further with your case. A means test is a way to ensure that your financial resources are limited, and you need the relief that only bankruptcy can provide. In simple words, your income is compared to the median household income in Utah. If you are earning less than the state median, you may choose to apply for chapter 7 bankruptcy. Otherwise, you might be eligible for chapter 13 bankruptcy. For chapter 13, a different means test is applicable.
Filing for bankruptcy seems like an exhausting step. It may feel like you will lose everything. You may be worried about the financial future and the social trauma that is attached to this choice. Nevertheless, it is a decision you have to take for your family. When high interest-rate payments are making it impossible to put food on the table, you should seek help. Court will give you access to items that are needed on a daily basis. You will get to keep a portion of the equity in your house, your vehicles, working equipment, and all social benefits, including pensions and unemployment benefits. The point of filing bankruptcy is to discharge high-interest debts, so you can continue to live a debt-free life.
Exempt & Non-Exempt Assets
In some states, you can choose between state exemptions and federal exemptions. You don’t get this choice in Utah, though. You must select state exemptions as other options are not available. Under Utah state exemptions, you can keep home equity worth $10,000. Let’s say your house is worth $100k, and you owe $90k to the lender. That means your investment is $10k, and you can keep your home provided you can continue to make future mortgage payments.
The same is the case for your vehicles. You can keep motor vehicles up to $2,500. You might have to give up that asset if the car is expensive or valued for more than the exempt amount allowed. You can keep life insurance proceeds worth $1,500, books, and musical instruments worth $500 and social benefits. For unpaid, but earned wages, you can have at least 75% of the money. The court might allow more if your situation demands so.
Bankruptcy will remain on your credit report for 8-10 years. Your credit score will go down and obtaining future loans will be a considerable challenge. Still, filing for bankruptcy chapter 7 can provide the much-needed relief. You can forget about the high-interest rates. Credit card debt is an example. If the outstanding amount is like $50k, you can forget about paying it back because of the compound interest rates. It would be best to file for bankruptcy, have your debts discharged, and work your way toward financial stability.
If you need help saving your home from foreclosure or you want more information regarding the bankruptcy process in Utah, please contact us. Our team is ready to assist you.