Filing for bankruptcy can be a huge financial step. Although bankruptcy can help experience relief from the financial stress, it is essential to note that it cannot be filed anytime. That means you should carefully consider whether now is the right time to file for bankruptcy before making a financial decision that can impact your future for the next 7 to 10 years.
Types of Bankruptcy
Before deciding whether bankruptcy is right for you, you should understand the available bankruptcy options. Most people will file for one of the two common types of bankruptcy: Chapter 7 or Chapter 13.
a) Chapter 7 Bankruptcy
Chapter 7 is typically a solution for people with very little income. Courts will compare your past six months of revenue to the median income in your state. Only those who earn less than the median income for their household size will be eligible for Chapter 7.
b) Chapter 13 Bankruptcy
While Chapter 7 is for those who have little to no income, Chapter 13 is sometimes called the wage earner’s plan. Chapter 13 allows you to set up a payment plan for getting rid of debt. Payments can typically last between three to five years under Chapter 13.
c) Other Types of Bankruptcies
While Chapter 7 and Chapter 13 are the most common for individuals, other types of bankruptcies can also be filed. They include the following:
- Chapter 9: Filed by cities, school districts, towns, and municipalities
- Chapter 11: Can only be filed by businesses
- Chapter 12: Bankruptcy for fisherman and farmers
- Chapter 15: Filed by foreign debtors who have assets or run a business in more than one country.
Foreclosure on Your Home
While a foreclosure can be one of the worst possible events to happen in your life, you can save your home. If a bank has filed foreclosure against you, filing for bankruptcy will issue an automatic stay.
An automatic stay will prevent any creditors from continuing to bring debt collections against you, and that will include the bank from continuing its foreclosure.
Automatic stays may be only temporary, depending on the type of bankruptcy that you file. A Chapter 7 bankruptcy will not allow you to stay in your home, while Chapter 13 has provisions that will enable you to get up to date on your mortgage.
Protection Against Lawsuits
If you are facing a lawsuit from one of your creditors, bankruptcy may be able to help. If you are behind your bills, creditors can sue you, resulting in judgments, liens against your property, and wage garnishments.
Bankruptcy can shield you from those lawsuits as long as the debt is qualified for a discharge.
Debts That Cannot Be Discharged
While filing for bankruptcy can help with most types of debt, not all debts will be eliminated through bankruptcy. Some debt will not be discharged, and you will still be responsible for it after filing for bankruptcy.
Debt that cannot be eliminated includes:
- Child support
- Fines associated with criminal punishments
- Student loans
- Drunk driving-related debt
- Debts associated with committing fraud.
Contact a Bankruptcy Attorney
If you think now is the time for you to file bankruptcy, scheduling an appointment with a bankruptcy lawyer is the next logical step to take. The process of filing for bankruptcy can be very complicated depending on your home state’s laws, but having an attorney on your side can ensure that you make the choices that will best benefit your long-term financial goals.