Indiana allows residents to eliminate their debts through credit counseling or bankruptcy. Credit counseling as well as Chapter 13 bankruptcy enable Hoosiers to partially repay their debts but negatively impact credit ratings for seven years. Some people may qualify for Chapter 7 bankruptcy, which allows permanent forgiveness of some pre-existing debts but impacts credit ratings for 10 years from the date of filing a case.
Asset Considerations
Creditors can sue Indiana residents who do not pay their bills on time, unless they file bankruptcy. Lawsuits can lead to wage garnishments and liens against assets, such as real estate equity. Once a state resident files bankruptcy, creditors cannot sue him. But in some cases, the debtor must forfeit assets to offset creditor losses. As of 2011, state asset exemption laws protect up to $15,000 of homestead value and up to $8,000 of other personal property, according to Bankruptcy Action. Indiana residents also will not lose their retirement accounts as the result of being sued, entering credit counseling or filing bankruptcy.
Chapter 7 Qualification
Not every Hoosier economically qualifies for Chapter 7, warns the U.S. Bankruptcy Court for the Southern District of Indiana. The usual eligibility measurement compares the debtor's income to that of the state annual median income level. As of 2011, the annual median income figure for a single Indiana resident was $40,683, while the level for a two-member household was $52,367, according to the U.S. Trustee Program. Families of three could earn up to $59,438 a year.
The Chapter 13 Option
People with disposable income and steady jobs can file for partial debt relief under Chapter 13 as long as their secured debts do not exceed $1,081,400 and all unsecured obligations are less than $360,475. Secured debts are those backed by collateral, such as a house or an automobile. It takes three to five years to finish a Chapter 13 plan, during which time a Hoosier cannot get new credit without a bankruptcy judge's approval.
Credit Counseling
Credit counseling services can sometimes negotiate debt management plans with creditors, helping people avoid bankruptcy, according to Consumer Credit Counseling Services of Northeastern Indiana. Some creditors will waive over-the-limit and late fees, reduce interest rates and cut the amount of minimum monthly payments. During a credit counseling plan, the debtor cannot get any new credit. Creditors will stop contacting the debtor as long as he pays his reduced debts on time. Debt management plans usually cost about $60 to set up.
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