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Chapter 7 Bankruptcy Pros and Cons in a COVID-19 World - YouTube
Channel: Consumer Warrior
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hey everybody john skiba here and in
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this video i'm going to go through the
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pros and cons of filing chapter 7
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bankruptcy
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the decision to file bankruptcy is an
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excruciating one for most people
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and there's a lot of thought that goes
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into is this the right step
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is this worth it in this video i'm going
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to go over all of those
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considerations that you may have and
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some maybe that you hadn't thought of
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if this is your first time here to my
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youtube channel go ahead and click
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subscribe
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check on the little bell that way you'll
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be notified each and every week of the
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new videos i put out that'll help you
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deal with your serious debt problems
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all right let's talk about chapter seven
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bankruptcy and some of the
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considerations that go into filing
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chapter seven
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this is a very difficult decision for
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pretty much
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everybody i always say no one wants to
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file for bankruptcy
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they just people get into this situation
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where they feel like there's no other
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options
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you're losing sleep uh maybe you're
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getting your wages garnished you're
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getting sued and things are just getting
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super stressful
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and so you're looking for a way to deal
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with it and deal with it quickly
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so in this video i want to go over three
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of the pros
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uh three the good side of filing a
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chapter seven bankruptcy and then three
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of the things that can
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negatively impact you about going
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through the chapter seven bankruptcy
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process
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the first positive thing about chapter
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seven
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is that it will with few exceptions
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eliminate almost
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all of your unsecured debt now so
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unsecured debts are debts where there's
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no collateral or property attached to
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them
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uh for instance credit cards those are
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unsecured debts
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medical bills personal loans
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those all of those debts go away
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completely in a chapter seven case
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now it's important to note that some
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unsecured debts do not go away into
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chapter seven
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uh taxes most taxes don't go away even
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though
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if the taxes are more than three years
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old there's a possibility they could go
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away
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and student loans those are another big
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one they typically do not
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uh go away they're typically not
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discharged in a chapter seven bankruptcy
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but other than that if you're dealing
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with credit card debts medical bills
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those kind of things are causing you the
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problem or you're being sued by one of
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your
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credit card companies or a medical issue
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or a personal loan
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those things can go away completely
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they'll be discharged through your
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bankruptcy
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and you won't legally be obligated to
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pay those any further
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so that's that's the first big thing is
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that it eliminates the unsecured debts
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second big pro second positive thing
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about bankruptcy
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is it has a very powerful tool called
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the automatic stay
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and what this is as soon as you file
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your bankruptcy case
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the uh the court issues an order called
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the automatic state that stops
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all collections this means everything
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stops
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if they're going to foreclose on your
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house that stops if they're garnishing
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your pay that stops if they're going to
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repossess your car
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it stops and even phone calls snotty
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letters all the things that creditors do
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all of that stops as soon as your case
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is filed and it literally is
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immediate when i file a bankruptcy case
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for clients there's an
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email i can actually log into the court
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site and i can download this order
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provide that to the creditors the court
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sends it out over a few days but
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we can actually get it immediately upon
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filing and it will stop
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all of that that can give you some peace
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of mind sometimes that's what people
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need just to be able to kind of think
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clearly and make good decisions
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is they just need everybody to be put at
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bay stop the lawsuit stop the
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garnishments
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allow you to really kind of regroup and
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make a decision going forward
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so the automatic stay that stops all
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collections
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is the second thing the second real
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positive thing
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about a chapter seven filing now the
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third thing
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that is to me one of the best things
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about chapter seven
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is it does give you a fresh start it's
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kind of cliche we hear about the fresh
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start that chapter seven offers
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but it really is it stops
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the collections it gets rid of the
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unsecured debts and it allows you to
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start over and rebuild
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your credit um it's you're gonna take a
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big hit
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i mean that there's no doubt about that
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but i can tell you often when i see
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people who try to do debt settlement on
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their own particularly if they have a
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lot of debt
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they actually struggle to recover from
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that more than people who file for
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bankruptcy
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bankruptcy is one point in time it's the
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day you file your case
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the further you get away from that the
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better off you're gonna be
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death settlement uh you know allowing
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credit cards to be charged off in
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lawsuits
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those can stick around for years and
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even decades if they get a judgment
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so the chapter seven really brings some
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finality to it it wipes the debts out
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there's one point in time where we know
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this is when you filed it and again like
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i said the further you get away from it
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the better
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let's talk about the negative side of
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things the biggest one obviously is
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there's a
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you're going to take a credit hit
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there's just no way around it if you owe
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money on a credit card or medical bills
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personal loans whatever it is
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and you're unable to pay it the credit's
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going to be damaged no matter what you
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do
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but with bankruptcy it's kind of the
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nuclear option you are going to take a
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pretty significant hit
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anywhere from 100 150 point drop in your
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credit score
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and the bigger issue is it does stay on
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your credit for 10 years
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now if you look at your credit report
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there's a public record section
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and the two things that typically show
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up there are tax liens
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and bankruptcy filings that bankruptcy
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filing will stay there
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10 years from the date that you filed
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your case
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with the court now the good news is it's
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not going to impact your credit score
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for that long most people recover from
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as far as their credit score coming back
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up within about two to three years
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like fha will do mortgage loans again
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two years after a chapter seven
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most other lenders are three to four
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years car loans are available almost
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immediately
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you're just gonna have a bad interest
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rate on that until you get a year or two
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away from your bankruptcy filing
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so uh the downside is yes it's going to
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be on there for 10 years it can impact
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credit decisions for 10 years
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and frankly it can impact credit
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decisions for even longer than that
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because sometimes they'll just ask have
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you ever filed not if you filed within
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the last 10 years
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but the good news is that it's not
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generally as bad as most people think
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i don't ever want to sugarcoat it
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there's definitely credit consequences
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to filing
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but it's just typically not as bad it's
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not as devastating as most people
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anticipate it is the second downside to
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a chapter 7 filing
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is it's possible you could lose assets
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so with the chapter 7 case the upside is
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you're going to wipe out all that debt
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all that's going to go away the downside
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is the court
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or more specifically the trustee that's
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assigned to your case
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is going to review all of your assets
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that you have to disclose in the
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paperwork
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and they're going to determine if you
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have any assets that can be sold
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and then the money be given to your
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creditors now the good news is that most
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assets are protected in most states uh
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they have
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laws called exemptions like most people
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have heard of the homestead exemption
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most states have exemptions for
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household goods retirement accounts
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cars those types of things so the most
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of the general
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basic stuff that you have is exempt but
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if you have
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you know a fishing boat that's been paid
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off for years and it's your pride and
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joy
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if you file chapter seven high
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likelihood something like
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that's going to be liquidated unless
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there's an exemption in your state to
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protect it
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where i uh practice in arizona that
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specific example you would lose the boat
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it would just it would
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it would go away so um that's one of the
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downsides to it
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is its potential there to lose assets
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one way to think about it is
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let's say you have 50 000 in credit card
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debt and you're gonna lose
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a few thousand dollars in assets that's
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a little bit painful there but it's also
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better that you're
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wiping out all of that credit card debt
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i i always say if i would have told you
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beforehand that you could wipe out 50
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000
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of credit card debt by selling your 4
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000 boat would you do it and the answer
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is yes you would have you know jumped at
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the chance to be able to do that
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so you may lose some assets but i can
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tell you
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in most states most things are protected
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by the exemption laws
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the third thing that i want to mention
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as far as the downside
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is something that some people get caught
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up in particularly people who file
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bankruptcy without an attorney
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and that is there are certain look-back
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periods that the court has
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over certain financial transactions or
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transfers that you've done over the last
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couple of years
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prior to the filing of your bankruptcy
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so a big one is
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what we call preferential payments to
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insiders
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insiders our family members or friends
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if you owe money to a
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family member or friend and often when
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we get into financial difficulty
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that you know rightly so that's the
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first place we go is to see if we have
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family that can help us out
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so they may borrow some money and then
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we're paying them back
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if you owe money to a family member or a
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close friend
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and you've been repaying that debt over
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the last
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12 months prior to the filing of your
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bankruptcy the bankruptcy trustee
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can go and get those payments back over
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the last 12 months
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particularly if it's a large amount
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they're going to go after it there's
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just no doubt about it
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this makes thanksgiving super awkward if
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they have a
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the federal a federal employee coming
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and trying to get all this money back
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that you've paid them
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so that may be something where you'd
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either not want to file chapter 7
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or delay filing it so they don't have
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that look back period
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similar type thing for what they call
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fraudulent transfers
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this often sounds more scary than it is
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uh typically these aren't situations
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where people are truly trying to be
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fraudulent
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but if you transferred an asset out of
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your name in the two years prior to the
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filing of bankruptcy
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and you got less than what it was worth
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and
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you were essentially the courts calls it
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insolvent or broke at the time that you
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did it
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the court may be able to undo that
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transaction
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the idea behind this statute is let's
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say that
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let's use a boat example again let's say
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that you have that fishing boat
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you're worried about losing it in a
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chapter 7 bankruptcy
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so instead of going into bankruptcy with
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the boat
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you transfer it into your brother's name
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and then file for bankruptcy
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uh the court is aware of this trick
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they've done millions of these things
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over the years and so what they do is if
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you've transferred that and you didn't
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get any money back for it if you didn't
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truly sell it
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then they can go and they can get that
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asset back bring it into the bankruptcy
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estate
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and then sell it give the money to your
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creditors again this causes some issues
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because
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if you've if you transfer it to a family
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member particularly your friend
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they're going to get wrapped up in this
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as the court reaches out to bring that
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asset
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back so the look back period can cause a
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little bit of issue
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with bankruptcy filings that you got to
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be aware of and this is where hiring an
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attorney and consulting is one before
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you jump into the bankruptcy realm
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is a big help because these are the
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types of things that cost people
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problems
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losing assets preferential transfers
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fraudulent transfers those are things
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that can really turn what should be a
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simple chapter
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seven it can really throw a wrench into
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it and cause you some problems on the
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road so
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those are kind of my pros and cons of a
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chapter seven filing uh it's absolutely
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necessary
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in some circumstances in other
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circumstances i think people
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could put together a payment plan or get
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you know work with their creditors to
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get out of it
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you're going to know that specifically
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better than someone like me
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is if you feel like you if you're able
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to do that but
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it is a very powerful tool it can bring
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some total organization and structure
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to dealing with your debts uh if you
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find yourself in that situation
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uh appreciate you listening today if you
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have any questions or comments go ahead
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and put them down in the comments i do
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review those and
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i do respond to them uh happy to see how
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we could help you out thanks for
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watching today
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