If you are thinking about bankruptcy, you first need to realize that every person and circumstance is different. Because each person is unique, the effects of bankruptcy on an individual's circumstances will likewise be just as personalized. Resist the temptation to compare your financial condition to a friend or celebrity's state; bankruptcy filings take on all sorts of forms, and sometimes people may find bankruptcy is not the most beneficial option in their particular case.
Bankruptcy can be categorized as either a Chapter 7 or Chapter 13 filing. To qualify for Chapter 7, you must pass a means test. Chapter 7 filers generally do not have a steady source of income and are not reasonably able to pay off their debts in the foreseeable future. A Chapter 7 filing will eliminate credit card debt and department store bills. Medical bills, utility bills, and personal loans will also be eradicated. To pay off your creditors, your non-exempt assets will be liquidated after you are approved for Chapter 7.
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Chapter 13 bankruptcy is structured differently than Chapter 7 in that it focuses on debt repayment over three to five years. Those seeking Chapter 13 relief usually have regular income but have fallen behind on their mortgage or credit card payments. If you are approved for Chapter 13 bankruptcy, your total debt will be consolidated into one monthly payment. In these cases, some credit card debt may be reduced or eliminated. Utility, medical, and department store bills may also be negotiated to a lower amount or dropped completely. No liquidation takes place with a Chapter 13 filing because creditors are being repaid over the three to five year time span.
Though unsecured debt is wiped away through Chapter 7 or Chapter 13 bankruptcy, secured debt is generally protected and must still be repaid. These debts include child support or spousal support. If you have been order by the courts to pay child support or alimony, you will still be required to make payments even after a bankruptcy filing. Student loans are also another type of secured debt. Because there is no physical collateral on a student loan, your obligation for repayment will not be negated by bankruptcy. You will also be held responsible for any incurred interest, as applicable.
If you owe income or property taxes, it is unlikely that filing for bankruptcy will get you out of having to pay back taxes. Court-ordered fines are also not discharged in a bankruptcy filing. Those who owe restitution to injury or crime victims will not find relief from this particular responsibility by choosing bankruptcy. Bankruptcy laws have been specifically designed and amended to protect certain creditor's rights, even in the event an individual decides to file for bankruptcy. Anyone who is contemplating the idea of bankruptcy needs to accurately understand what financial responsibilities will and will not be removed through a Chapter 7 or Chapter 13 filing. Ignorance on this matter can result in unpleasant and costly surprises down the line. It is always advisable to enlist an attorney to help weigh your options and guide you through the bankruptcy process.
Because bankruptcy is such a complicated process and no two cases are alike, it is best to consult with a knowledgeable bankruptcy attorney who can advise on your circumstances. A lawyer with an extensive background in bankruptcy law will tailor a legal approach that gives your situation the best chance of a positive outcome. Financial crisis can be disruptive to everyday living, but selecting the right legal counsel will put you back on the path to a worry-free future.
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