When a person goes through financial turmoil, bankruptcy may be the best solution to make a fresh start, either temporarily or permanently. Moreover, this prevents collectors from collecting debts. Although, it is a good way to deal with your money problems, however, it is considered to be the last resort given its far-reaching results. Once you file for bankruptcy, it stays on your credit history for as long as ten years. This may also make it hard for you to acquire credit, purchase a home, purchase life insurance policy, or even get a job.
People who file bankruptcy, receive a court order stating that these people do not need to return a few debts.
There are certain common questions that you can consider asking yourself before filing bankruptcy:
- How Filing for Bankruptcy Can Help Me?
The biggest benefit one may find is, it eliminates the legal obligation to pay all or certain part of the debts, prevents repossession of car and other properties- orders creditor to return the repossessed property- halts the procedure of foreclosure and gives you the time to catch up on missed payments, stops garnishment, and stops the action of debt collection.
2. Where Bankruptcy Cannot Help Me?
Although, bankruptcy is a legal way to seek a fresh start, however, it does not solve all of your financial problems. For instance, debts owed to secured creditors will not be eliminated, but, these debts can be restructured.
Apart from it, the debts falling into the following categories, will not be discharged:
- Debts incurred within 180 days before filing for bankruptcy
- Child support debts
- Court fines and penalties
- Certain taxes, accrued over the past three years
- Debs not listed on the bankruptcy filing
- Loans acquired through fraud
- Student loans which became due less than seven years before filing for bankruptcy
3. What is the Amount of Debt Do I Have to Have before Filing Bankruptcy?
According to certain experts, a person should not file for bankruptcy unless the amount of debt is $15,000 to $20,000. Although, one can file bankruptcy for the lesser amount than the said here, however, the damage to the credit rating can outweigh the benefit of discharging smaller debt load. Moreover, in this case, it becomes difficult to convince the court that discharge is warranted.
4. What are The Main Types of Bankruptcies?
For individuals, there two main types of bankruptcies, Chapter 7 and Chapter 13.
In Chapter 7, the debts are discharged, by usually forfeiting property to the trustee to pay the outstanding debts. Debtors can keep a certain portion of the property known as ‘exemptions’. The exempted property cannot be seized in bankruptcy. However, home or car is not exempted and is always at risk to be seized to repay the debts.
In Chapter 13, the debts are reorganized and the repayment plan is devised. The biggest benefit of this bankruptcy is that it prevents the creditors from harassing the debtor as well as the debtor can keep the house or car as long as he or she follows the payment plan.
5. What Properties are Exempt in Chapter 7?
The debtor can keep all the property in Chapter 7 bankruptcy. In order to determine what properties are exempt, state law and federal law is consulted.
6. If I File for Bankruptcy, What Will Happen to My Home and Car?
As long as your equity in the property is fully exempt, you will not lose home and car. In case your property is not fully exempt, and you pay the non-exempt value to the creditors in Chapter 13, you can keep your property. If the creditor has the security interest in your property, and you don’t make payments, the creditor can take your property and sell it.
7. What Do I Own After Bankruptcy?
You are supposed to keep the exempt property and anything you acquired after filing for bankruptcy. However, if you have received any insurance plan, settlement, or inheritance within 180 days after filing for bankruptcy, this may have to be paid to the creditors- if not qualifies for exemption.
When filing for bankruptcy, it is important to know which type of bankruptcy is suitable for you. For this purpose, you should consult a skilled bankruptcy attorney who examines all aspects of your financial situation and guides you in the right direction.