Identity theft is one of the most overwhelming events that can ever happen in your life. It is time-consuming, confusing, and affects various aspects of life, particularly those associated with finances. Identity theft cases are often solved without taking any drastic measures. However, what happens when you have exhausted all your available options, and it still seems to be no end in sight as far as the consequences of identity theft are concerned? You can consider consulting an experienced law firm like San Diego Bankruptcy Attorney to help you file bankruptcy.
Does it Make Sense to File Bankruptcy Due to Identity Theft?
Identity theft is willingly acquiring someone's identifying information and then using that information for an illegal purpose without that person's consent. Unlawful purposes involve obtaining goods, services, money, credit, medical information, or property. Filing bankruptcy under chapter 7 can help reduce stress from creditors and let you begin rebuilding your credit. Listed below are the benefits of bankruptcy that answer the question of whether it is sensible to file bankruptcy following identity theft.
Peace of Mind
One of the benefits of filing bankruptcy is the peace of mind when managing the debt. Filing bankruptcy allows you to revisit the events that led to identity theft, prevent it from happening in the future, and plan your future carefully.
Stops Creditors from Harassing You
Most people unplug their phones until late at night hoping to evade credit collectors who are looking to receive payments on debt. Luckily, bankruptcy protects you from creditors by creating an automatic stay. The automatic stay also stops lawsuits, foreclosures, wage garnishments, and repossessions. With this legal protection, the court makes sure it can work through the process to solve the debt disputes.
Additionally, bankruptcy protects you from discrimination from your employer; your employer cannot fire you based on your financial status.
You Keep your Future Income
Generally, any asset acquired after filing a Chapter 7 bankruptcy isn't included in the bankruptcy estate. Nevertheless, certain assets acquired within one hundred and eighty days after filing for bankruptcy become part of the estate. This applies to assets obtained from a divorce settlement agreement, inherited assets, proceeds from life insurance, and death benefits.
No Restrictions on Debt Amount
Unlike other bankruptcy chapters, Chapter 7 bankruptcy doesn't impose a limit on the debt amount you may have. That means you are eligible whether your secured and unsecured debts exceed debt limits or not.
Quick Discharge of Debts
Typically, the discharge of debt may happen in sixty to ninety days after you file for bankruptcy. The court will close your case immediately the trustee distributes your assets to all unsecured creditors.
Are You Eligible for Chapter 7 Bankruptcy after Identity Theft?
The Mean test is used to determine whether your income is low enough to file a Chapter 7 bankruptcy. Nonetheless, considering Chapter 7 does not mean that you do not have money to use the chapter in question. You can make significant monthly income and still be eligible if you have a lot of reasonable expenses.
So how does mean test work? It is meant to ensure only those who cannot pay their debts can use Chapter 7. This is done by subtracting specific monthly expenses from the current monthly income to reach the monthly disposable income.
The higher disposable income, the less likely you will be permitted to use chapter 7 bankruptcy. Instead, you will be expected to repay your creditors using your disposable income.
Step-by-Step Guide on How to File Bankruptcy
Decide to File
Filing bankruptcy is one of the decisions that should not be taken lightly. First, you need to gather your financial details and then list both your assets and debts. Categorize the debts into two: unsecured and secured. Auto loans and mortgages fall under secured debts while unsecured debts include credit card and medical debt. Once you file bankruptcy, the unsecured debts get discharged.
When deciding whether filing for bankruptcy is suitable for you, put your budget into consideration. Can you modify it in an effective way of paying off the debt? Has any creditor taken legal action against you? If you think you cannot pay off the debt following identity theft, then bankruptcy may be the best decision.
You should complete a one hundred and eighty-days compulsorily credit counseling class before filing the bankruptcy. You must present evidence that you have met this requirement before you are eligible to proceed. Failure to attend this class could lead to your case being dismissed.
A credit counselor will analyze your financial situation and check whether you can manage debts without bankruptcy relief. This will be done by reorganizing your finances and consolidating some debts in a way you do not require to file for bankruptcy. You could also find out that bankruptcy is the only solution. If that is the situation, then it is time to move to the next step.
Consult a Qualified Bankruptcy Lawyer
It is okay to file bankruptcy after identity theft without the assistance of a lawyer, but the odds are that the outcome will not be not favorable. Bankruptcy law is complicated, hence difficult navigating without a lawyer's expertise.
Present and discuss your financial details with your attorney. Then the lawyer should assist you in determining the best debt management plan for your situation. If filing bankruptcy is the best option, the lawyer will go ahead to decide whether you are eligible to file Chapter 7 bankruptcy or not.
Filing the Bankruptcy
After settling on filing bankruptcy, your lawyer will gather the essential paperwork before filing it with the bankruptcy court. The paperwork will consist of income, expenses, assets, financial transactions of many years, and information about the debts and creditors.
After filing bankruptcy, you will be protected by the automatic stay. With automatic stay, it is unlawful for any creditor to try collecting debt from you in the course of the entire bankruptcy process. It is tailored to make sure the court addresses the financial affairs without creditors coercing you. Once you file, all creditors highlighted on the bankruptcy forms will be notified so that they can participate in the bankruptcy process.
Bankruptcy Trustee Analyzes the Situation
When you file for bankruptcy, it is taken to the nearby bankruptcy trustees who will handle the bankruptcy process. They will also mediate between you and the creditors to make sure that all parties are honest.
Additionally, they will analyze your property to decide if any is non-exempt. There are two exemption methods to guard your property in California. Both systems apply to equity in your assets. Equity is the total amount you have (value of your asset after deducting all the debts).
Moreover, the trustee will examine major financial transactions you have made earlier on to check whether any can be reversed to pay the creditors. For instance, if you transferred property to a loved one before filing bankruptcy, the court could conclude that it was fraudulently planned to protect the asset and undo that transaction.
A non-exempt asset will be sold while fraudulent transactions could lead to case dismissal. Therefore, it is essential to be transparent with your lawyer. Otherwise, you could lose valuable property or even have the case dismissed.
Meeting with Your Creditors
After a trustee has looked over your case, they will plan a meeting with your creditors. Probably this is the only meeting you will be required to attend court during the entire bankruptcy process. Also referred to as 341 hearing, this meeting will be scheduled between twenty and forty days after filing bankruptcy. You, the trustee, and your lawyer will attend the meeting, but most creditors decide not to. Typically, creditors will only appear in court if they have any objection to the filing.
You should bring to the meeting your photo ID as well as the social security number. The trustee could also request you to carry documents such as a pay stub, bank statements, and lease.
During the meeting, you will be sworn in. The trustee will also ask you several questions. They will ask why you're filing bankruptcy, whether the details presented are accurate among other necessary details. They could also go ahead to ask financial history questions.
Also, creditors in attendance will be allowed to ask you questions. Generally, creditors will like to understand how you will settle any secured debts.
After every party has asked queries, the trustee would request you to present additional documents or even amend the filing. If that is the case, you will be required to appear in court for another hearing.
Following the meeting, you will be required to surrender non-exempt assets. The assets will be sold, and all proceeds are given to the creditors. As previously noted, bankruptcy exemptions protect debtors and do not have to surrender any asset.
The secured debts will be handled according to your loan status as well as your decision to reaffirm.
After non-exempt assets are sold and secured loans taken care of, the remaining unsecured loan is discharged. The term discharge means the loan is forgiven and your creditors cannot try to get the debts from you. In other words, you will no longer be in debt.
However, debts due to identity theft like student loans, spousal support, child support, and debt resulting from driving while under the influence of alcohol or drugs are not discharged. Instead, they will survive the bankruptcy, and you will handle them after the discharge.
Start All Over Again
Now that your unsecured debt is taken care of, it is time to start over on a clean slate. Although your credit score is to a certain degree damaged by the bankruptcy, you can start rebuilding it slowly. Get another credit, start making small charges monthly, and within no time your credit score will improve. You can consider getting a store card if you are experiencing challenges getting certified for a regular card.
What You Should Expect from your Bankruptcy Lawyer after Identity Theft
Not every bankruptcy case is complicated, but they are not all easy, either. Either way, a competent lawyer should be able to:
Offer an Initial Consultation
During the initial consultation, the lawyer should know your financial goals, analyze your financial situation, and then discuss with you the available debt management options. The lawyer will then assist you in deciding if you should file for bankruptcy. Attorney charges should also be discussed during the first consultation.
Deal with Creditors
After hiring an attorney, the attorney will be taking your collection calls from creditors on your behalf. Even though lenders are legally permitted to reach you until the bankruptcy is filed, they typically stop making calls once you engage an experienced lawyer.
Moreover, before the 341 hearing, your lawyer will discuss all potential issues as well as assist you in preparing for questions that the trustee is likely to ask.
Prepare and File a Bankruptcy Petition on your Behalf
This is the main role of a lawyer. The bankruptcy petition consists of exhaustive forms which should be filed with the court and depending on the number of creditors; the petition can be as long as sixty pages. The bankruptcy lawyer will give you a chance to review your petition before filing it with the bankruptcy court to make sure all assets and debts are highlighted as well as there are no mistakes. Immediately the petition is filed, an automatic stay will be ordered.
Reaffirmation Agreements and Motions
It's your attorney's responsibility to review, negotiate, and sign any reaffirmation agreements on secured assets that you want to keep. Most bankruptcy filers choose to reaffirm their assets hence continue making payments while keeping the asset.
Your lawyer should also be able to file additional motions when required. Typically, these motions consist of redemption motions to reduce vehicle payments or avoid judicial liens on real estate.
Effects of Bankruptcy Caused by Identity Theft on your Credit Score
Filing for bankruptcy offers an identity theft victim a fresh start by wiping away most of the debts. Nevertheless, the effects of bankruptcy on the credit score can be devastating. A poor credit rating affects credit limits on cards provided to you. It also makes it difficult to be eligible for loans at a favorable interest rate.
However, to what extent is your credit affected, and how long does it take to improve the credit score? The time the poor credit score remains varies with the chapter. While Chapter 7 bankruptcy credit report penalty lasts ten years, chapter 13 bankruptcy lasts seven years from the date of discharge.
The consequences of credit score penalties differ. If you have a low score, then bankruptcy has less impact. This is because you've less room to fall compared to those with a high score.
How to Build Your Credit Score After Bankruptcy
Filing bankruptcy is not the end of the world. For most people, it is the beginning of a bright financial future after identity theft. However, you cannot just file the case and expect instant improvement. It will take time. You also need to work for it. Discussed below are tips to improve your credit score:
- Monitor your credit reports often for mistakes
Credit reports are not always correct. According to a Federal Trade Commission study, approximately twenty-five percent of U.S consumers discovered mistakes on their credit reports, which could have affected their credit scores. Monitoring your reports often can assist you in finding as well as disputing any errors.
After the bankruptcy is completed, ensure that:
- Your accounts were discharged,
- The date of filing bankruptcy is correct, and
- All discharged accounts have a $0 balance.
- Consider using a retail credit or secured card
Although bankruptcy affects your purchasing power, it should not destroy it completely. You could still be eligible for retail cards or secured credit cards. Secured credit cards need an upfront deposit that protects the creditor in any event you fail to make a payment, whereas retail cards have fewer credit requirements compared to most unsecured cards.
With either card, avoid taking more credit than you require and keep the balances low. Setting up payment and balance alerts will assist you in meeting your credit-building goals.
- Become an accredited user on an account
This involves a loved one adding you to their credit card account. Your credit score will benefit from their on-time payments and account history, and your existing history will not affect them. You will be using the credit card in your name. However, you will not be lawfully responsible for paying it.
Find a Competent San Diego Bankruptcy Lawyer Near Me
The decision to file bankruptcy after identity theft has never been easy. However, there are instances it can be the best option. This is because it allows you to start over so that you can continue to be a productive consumer and worker by protecting your assets. At San Diego Bankruptcy Attorney, we will assist you in understanding different options as well as the pros and cons of filing bankruptcy. This will help you avoid making unnecessary mistakes that could hurt you in the future. For more assistance, contact us at 619-488-6168.