Is Bankruptcy The Answer?
If you’ve suddenly lost your job, been out of work for months, or are hit with massive bills you cannot handle, you may find yourself considering bankruptcy.
While some creditors are fairly compassionate to people who are undergoing financial hardship, some of then can also be very insensitive especially if there’s a very substantial amount involved.
By default, people automatically think of what is referred to as Chapter 7, relief from debt, when the word bankruptcy is mentioned. There are two other types however: Chapter 11, which allows businesses to realign their debts or reorganize, and Chapter 13, which is another type of restructuring program catered to sole proprietorships or individuals who are not qualified to file under Chapter 7.
Under Chapter 7 bankruptcy, there is no plan for debt repayment unlike the other types. A bankruptcy trustee assesses your property and determines what may be exempt, such as a home, car, or property under a lien for which you wish to reaffirm the debt. Non-exempt assets shall be collected and sold to settle a portion of your debt. Non-exempt assets includes luxury items acquired for the past 90 days, even on credit, and additional cars with no liens attached. The Bankruptcy Code authorizes the debtors to hold on to certain “exempt” assets and draw on any unclaimed equity on their home in order to decrease the value of other non-exempt assets which they wish to maintain.
To qualify for chapter 7 relief, you are subject to a means test, which looks at your monthly income averaged over the previous six months. If you fall short of your state’s median income, you automatically qualify for Chapter 7 regardless of the amount of your liability. You are not eligible to file for Chapter 7 however if you underwent credit counseling in the past six months or had a bankruptcy case dismissed because you were unable to comply with the requirements or dropped out of the case by your own preference.
Bankruptcy is a complicated matter which demands a lot of paperwork, so it would be wise for you to hook up with a local lawyer or firm specializing on bankruptcy who can work with you via the internet and by phone.
The case will begin with the filing of an official petition, schedules and a statement of financial affairs in bankruptcy court. Once the petition has already been filed, creditors are frozen from collecting your liabilities, either by annexing your property or filing a case against you. Any creditor who violates this stay, even a utility shut-off, can be held in contempt of court and ordered to pay you damages.
Bankruptcy may be a win-win prospect especially when you are talking to creditors on the phone, but there is certainly a huge disadvantage in doing it as well. Nonexempt property will be sold to pay creditors, so you might lose a vacation home or family heirloom; it will become part of your credit history for 10 years as well as part of the public record; and the costs of bankruptcy itself can be steep and include court fees, trustee’s fees, consumer counseling and a financial education course, even without an attorney.
If you think that Chapter 7 would be the answer to your present predicament, then start evaluating yourself through the means test and compare your income with reference to the state’s income threshold. If you don’t pass the criteria, try and find other alternatives by communicating with creditors and debt counselors. When you’re still undecided or believe that is the course for you, set up an initial appointment with an attorney to discuss the process. Once all the facts have been thoroughly considered then it’s time to make your final decision.
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