Having debt hanging over your head can be stressful, but when even the minimum payments are impossible, the situation can be too much to handle. It’s time to take some serious action, starting with taking a hard look at your budget and cutting out things that aren’t necessary. You may also be able to work with your creditors for reduced payment plans or interest rates to make your monthly expenses more manageable. Still, you may get to the point where your best option is to file bankruptcy, which can be a welcomed relief. While bankruptcy can discharge many types of debts, you may worry about the immediate and long-term consequences of filing. You may have heard stories of people losing everything they own, just to get out of debt, but there are many safety nets in place to protect your assets and livelihood.
For Your Benefit
The purpose of bankruptcy isn’t to leave you destitute as a punishment for your debt; it was created to ensure consumers have a way out of debt and the opportunity of a new start. This doesn’t mean you’ll experience zero losses as a result of your bankruptcy. Depending on your income, debts, living expenses, and the type of bankruptcy you choose, the court may need to seize some of your property and sell it to repay your creditors. Fortunately, there are many exemptions we can use to protect your assets and property.
The first decision we’ll make is choosing which chapter of bankruptcy will work best for you. We’ll conduct the Means Test, which determines if you have the “means” of paying off your debt, based on the specifics of your situation. If you pass the test, you’re eligible for a Chapter 7, which discharges unsecured debts. Most people who file Chapter 7 are able to keep all of their assets because these cases are usually “no asset” cases. If you have secured loans, such as a car or home loan, you may choose to keep the property as long as you stay up to date on payments and keep the property insured. If, after reviewing your budget, these payments are no longer reasonable for you, you may choose to end the loan by returning the property. The court trustee can then decide if it would be beneficial to repay the creditor from the remaining value.
A Chapter 13 may be a wise choice if you have property that would be lost in a Chapter 7 (or if you do not pass the Means Test.) This reconfigures your debts and you make payments to the court for 3-5 years. This would be considered full payments on your secured debts, and after your repayment period, remaining unsecured debts are discharged. A Chapter 13 allows you to keep your property while also taking care of your debts.
Many people avoid filing bankruptcy because they are afraid of the consequences and worry about losing property, when in reality, it may be the best choice they ever make. If you’re confused by your options, call me so that we can discuss your situation.