Helping you navigate the bankruptcy process.
Have answers about car repossession, student debt relief, and more? Our bankruptcy lawyers answer FAQs regarding bankruptcy in Massachusetts below. To get answers about your specific case, feel free to call us for a free consultation: (508) 502-7002.
How Does Bankruptcy Work?
Bankruptcy is a form of debt relief. Declaring bankruptcy is a legal proceeding that allows consumers to consolidate their debt with a court trustee, pay as much of it as possible through the bankruptcy proceedings, and then discharge the rest. It creates a way for people to get out from under debt and restart their financial future with a clean slate.
It begins with preparing the bankruptcy petition, which can be done in one of three ways:
- With an attorney
- With a bankruptcy petition preparer
- By you personally
A bankruptcy petition preparer is someone who takes the information you give them and prepares your petition, but they offer zero legal advice. Their services only ensure that your petition follows court procedure. Doing it yourself means you take full responsibility for knowing and following the Bankruptcy Code and Rules. Any mistakes you make might result in dismissal of your case.
An attorney is the strongest chance you’ll have of preparing a successful bankruptcy claim. Like a bankruptcy petitioner, their knowledge of court procedure will ensure your petition isn’t dismissed. However, their legal counsel is worth far more than that. A bankruptcy attorney can help you protect the assets you value most, assert your rights against creditors, and ultimately help you get free from debt in the smoothest, easiest way possible.
Is Bankruptcy Right for Me?
Bankruptcy is a vital tool for consumers to free themselves from financial disaster. While almost any consumer can benefit from bankruptcy, it is a decision with long-term ramifications. A bankruptcy can remain on your record for years, so it’s not a decision you should make casually.
The two types of bankruptcy available to individuals are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 bankruptcy discharges most (if not all) of your debt, but you may be required to sell certain assets to pay off your creditors. Chapter 13 bankruptcy is essentially a wage-based repayment plan that consolidates all your debt into a single monthly payment.
If you make less than the median wage in Massachusetts, your debt is largely unsecured (e.g. medical bills, credit card debt, personal loans), and you qualify for exemptions for your car, home, and other belongings, you might be the perfect candidate for Chapter 7 bankruptcy. With unsecured debt and exemptions, you’d likely walk away from bankruptcy with very few lost assets.
If you earn too much to qualify for Chapter 7 bankruptcy, you may be able to qualify for Chapter 13 bankruptcy. The debt repayment plan allows you to set aside a certain portion of your income every month for living expenses, and the rest goes toward pay down of your debt. Chapter 13 is often considered the less “extreme” version of bankruptcy.
Does Bankruptcy Help with Tax Debt?
It depends on the tax debt in question. Tax debt is only eligible for discharge under a Chapter 7 bankruptcy if the taxes are income taxes, you didn’t commit fraud, the debt is three years old or older, you filed a tax return, and the IRS assessed your tax debt at least 240 days before filing.
If your tax debt doesn’t meet all of those requirements, Chapter 7 bankruptcy will be unlikely to help. However, you may still be able to file for Chapter 13 bankruptcy to pay off your tax debt in full over three to five years. This won’t discharge any of the debt, but it will at least allow you to pay in smaller installments.
Additionally, bankruptcy may be able to help indirectly with tax debt. For instance, if you owe back taxes and have a great deal of unsecured debt, you’ll be able to discharge your unsecured debt so you can focus on paying back what you owe in taxes. However, if the bulk of your debt is owed in back taxes, then bankruptcy may be of limited use to you.
There may be very specific and rare exceptions regarding tax debt bankruptcy, but the best way to learn your financial options is to call a Massachusetts bankruptcy attorney as soon as possible.
My Car Was Repossessed. Can Bankruptcy Help?
Yes! In Massachusetts, filing for Chapter 13 bankruptcy can compel the vehicle lender to return a repossessed car to you without requiring payment. Chapter 13 bankruptcy allows borrowers to consolidate all of their debt into a single amount under a trustee appointed by the court. The trustee then takes a single monthly payment from the borrower and disburses it among the borrower’s various creditors and lenders.
This includes vehicle loan lenders, even after a car has been repossessed. However, keep in mind that after 20 days, the lender has the right to sell your vehicle. If you want to get your car back, you’ll need to declare bankruptcy within 20 days of losing the car.
Speak with our Massachusetts Chapter 13 bankruptcy lawyers to learn your financial options in a free consultation!
Can Student Loan Debt Be Forgiven in Bankruptcy?
The short answer is yes. The more accurate answer is yes, but with great difficulty and in rare cases. Most borrowers can file for Chapter 13 bankruptcy and reorganize their student debt, which would provide relief in the form of a smaller loan payment. This isn’t debt “forgiveness,” but it is a form of debt relief.
However, Chapter 7 bankruptcy and debt discharge is another story. In Massachusetts, discharging student loan debt requires that petitioners prove repayment would inflict “undue hardship,” an extremely difficult standard to meet. This is sometimes called “passing the Brunner test.”
The Brunner test has three requirements:
- Paying the loan makes you unable to sustain a minimum standard of living
- Your financial situation is unlikely to change in the future
- You’ve made a good-faith effort to pay off your loans
In one recent case, a borrower in her sixties was unable to pass the Brunner test, despite a monthly payment of $1,000 and poor health that prevented her from working. The court found that despite her age, enormous debt, and chronic illness, she had enough equity in her home that disqualified her from debt discharge.
If it weren’t for a skilled bankruptcy attorney appealing on her behalf, she would have had to sell her home. Instead, she won her case on appeal and wiped away her student debt, saving her home.
Get a free consultation from our bankruptcy team: (508) 502-7002.
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