We all encounter financial problems every once in a while. It is normal. It is part of life. In some cases, however, the problem is too big to carry on your own. You suddenly lose your job, there are huge medical expenses to pay or you overextended credit. The list goes on. These could lead to you being in serious debt, and you might think filing for bankruptcy could be the solution.
But what exactly happens when you file for bankruptcy?
To put it simply, bankruptcy is a legal way for people or even businesses to get a fresh start with the option of clearing their debts when they are no longer capable of paying them back. It allows you to get a fresh financial start, by either temporarily or permanently preventing debt collectors from collecting payment for your debts. Considered as a last resort debt management tool, a bankruptcy will be kept on your credit report for 10 years, limiting your opportunity to acquire credit, buy a house, get life insurance, or sometimes, even getting a job.
It is important to take note, however, that filing for bankruptcy is a legal procedure that offers a fresh start and debt relief for people who can’t repay their debt. People who filed for bankruptcy must follow the bankruptcy rules receiving either a) a debt discharge; a court order relinquishing them of their duty to repay certain debts, b) debt settlement, or c) a loan repayment plan.
What Bankruptcy Can and Cannot Do for You
Although bankruptcy filing can help eliminate your legal obligation to repay most, if not all, of your debts, stop your house foreclosure, and prevent your car and/or other properties from being repossessed, it is important to note that it is not the solution to all of your debt problems. Sure, it can give you the chance to catch up on your missed and overdue payments, stop the garnishment and debt collection letters from debt collectors, and restore/prevent termination of your utility services, but it still can’t make all your financial obligations go away. For instance, declaring bankruptcy won’t eliminate the debts you owe to secured creditors (i.e., those who hold an interest in collateral such as a mortgage).
It won’t also discharge you of debts under these categories:
- debts incurred at 180 days before filing bankruptcy
- child support
- some taxes, especially those accrued in the past 3 years before filing
- court fines and penalties
- Debts made after the bankruptcy has been filed
- Student loans
Being in serious debt is hard. If you are considering filing for bankruptcy, talk to one of our trusted bankruptcy lawyers today, and let us help you decide what is the best course of action to take.
Different Types of Bankruptcy
There are different types, or chapters, of bankruptcy both for individuals and businesses. People generally have the option of which type of bankruptcy to file, and the most common for individuals are Bankruptcy Chapter 7 and Bankruptcy Chapter 13.
Chapter 7, also known as a “liquidation” or “straight” bankruptcy chapter, is a more traditional type of bankruptcy. Here, all of your properties will be liquidated by the bankruptcy trustee to try to pay off your outstanding debts. You, as a debtor, will be allowed to keep certain properties, or “exempt assets.” These exempt properties cannot be seized during the bankruptcy proceeding. Chapter 7 will work well for you if you have unpaid credit card balances, personal loans, huge medical bills, or own little property.
It is important to note, however, that Chapter 7 won’t prevent secured creditors from seizing your property to wipe out your debt. Properties that are subject to a security interest like your house or your car, won’t be exempted and possibly be foreclosed or repossessed.
On the contrary, Chapter 13 gives you the option to secure your assets such as your home and personal vehicle. Chapter 13 is a special kind of debt adjustment. It is a “reorganization,” where a debt repayment plan is filed in court, showing how you plan to pay off your debts over the next 3-5 years. Chapter 13 keeps you from being harassed by your creditors and it allows you to keep your properties that are subject to security interests, so long as you can make the payments required under your repayment plan.
Chapter 13 is a good option for you if you have enough expendable income to complete an approved repayment plan.
Chapter 7 and Chapter 13 differ in requirements, benefits, and specifications. As such, reaching out to a trusted bankruptcy law firm can help you understand their differences.
If you want to seek legal help, contact us at Cutler & Associates, LTD today, and let us connect you to an experienced bankruptcy attorney.
Dealing with financial problems and being in serious debt can be hard. If you think filing for bankruptcy can be a good option for you, feel free to call one of our bankruptcy lawyers at (224) 836-4956 for a free bankruptcy evaluation.