Most people never imagine they’ll need the relief of filing for bankruptcy, but sometimes debt piles up unexpectedly. Losing a job or a medical bill can lead to increased credit card debt and you may only be able to make minimum payments. Other bills pile up, and before you know it, you’re overwhelmed. There are many benefits to filing for bankruptcy, but it is also important to weigh the consequences of filing for bankruptcy before moving forward.
First steps
Most people know that bankruptcy can wipe out a lot of their debt, but you’ll need to make some big decisions to get there. First, we will perform the means test to help us decide which bankruptcy chapter is best for you. If you pass the means test, you are eligible to file a Chapter 7, which discharges most unsecured debt, including medical bills, credit cards, utility bills, and back rent. If your income is too high or you have assets and property that you need to protect, Chapter 13 is a beneficial option. We will propose a payment plan to the court that will last 3-5 years, during which time you will make reduced payments based on your income. At the end of your pay period, most of your remaining unsecured debt is written off, greatly reducing the total you’ll pay on debt.
When you have a debt that you cannot pay, you are bound to receive calls and letters from creditors, which can be extremely stressful. One of the benefits of filing any chapter bankruptcy is that the automatic stay will go into effect, meaning your creditors must stop calling you as soon as you tell them you filed. This gives you some time to focus and get your finances in order.
things to consider
While all the positive things about bankruptcy are great, this legal decision is not without consequences. Your credit score will drop, which can make it harder to get credit in the future or even rent a house. Also, not all debts can be included in bankruptcy. You will still be responsible for child support and alimony payments, although you may be able to modify payments based on your new situation. Student loans can only be included in bankruptcy under very strict guidelines, but you may be able to work with your lender to find a repayment plan that best suits your needs. Back taxes are also generally not included in bankruptcy.
If you want to keep your property, like your car or home, you’ll need to stay current on these payments; if you fall behind, your creditor will seek repossession or foreclosure. It may be to your advantage to give up these items if the payments no longer fit your situation, or you can make these payments more reasonable by discharging other debts through bankruptcy.
Thinking about the benefits of bankruptcy can give you hope for your future, and I can help you make a solid plan to pay off debt and preserve as much of your property as possible. If you’re not sure how to proceed, please call or email me so we can talk.