When faced with overwhelming debt, bankruptcy might seem like the perfect solution, but every case is different. Before filing for bankruptcy, consult with an attorney for information regarding the bankruptcy process.
While numerous aspects of the bankruptcy procedure might influence your case, it’s important to acknowledge three very important pieces involved in filing: what exactly is dischargeable debt, qualifying for bankruptcy filing, and some familiarity with the most common types of bankruptcy.
Classifying types of debt
Outstanding debts are typically classified into two types: secured or unsecured. A secured debt is typically associated with some type of security or collateral, such as a home or a vehicle. Other lenders might also leverage the equity in your home to guarantee their loans. Secured debts also include home equity or car loans and sometimes personal loans from financial lenders, depending on agreements.
An unsecured debt is one not ‘secured’ by collateral or property. A few examples include medical bills, student loan debt, and credit card debt.
After filing for bankruptcy, the court typically issues mandatory ‘stays’ that prevent creditors from confiscating property or assets. Filing also prevents them from pursuing any lawsuits to collect monies owed.
Be aware that some common types of unsecured debts can’t be discharged when filing for bankruptcy, such as student loans, child support, alimony, real estate taxes, and income tax debt.
Do I qualify for bankruptcy?
Because bankruptcy laws differ by state, it can be challenging to know whether or not you qualify for bankruptcy. Your first step to making such a decision is to consult with an attorney. Doing so will ensure that your case meets the qualifications of your state. Your attorney will discuss any aspects of your case that might disqualify you or fail to provide you with the debt relief you’re looking for.
Just because you’re in debt doesn’t mean it’s in your best interest to file for bankruptcy. To determine if you qualify, you must pass a “means test”. This test determines whether you’re eligible to file for bankruptcy based on your state’s average median income levels. State guidelines for median income and household size differ. In a nutshell, the test analyzes your income and deducts certain monthly expenses from that monthly income to determine whether you have adequate “disposable income” that can be used to repay your creditors.
Filing for bankruptcy: a brief description of Chapter 7 and Chapter 13 bankruptcy
Chapter 7 and Chapter 13 bankruptcy filings are the two most common options when filing for bankruptcy. A Chapter 7 bankruptcy is often also known as a “liquidation” bankruptcy. This type of bankruptcy provides relief of unsecured debts like medical bills or credit cards and similar debts most common for consumers. In many cases, a Chapter 7 bankruptcy is beneficial for those with little or no assets and limited income.
A Chapter 13 bankruptcy is beneficial for those who have a regular income and enough disposable income left over each month to pay back at least some of their debts through a restructured payment plan.
Bankruptcy is often seen as a final option for those facing financial debt or insolvency. While it is a legal way to rid yourself of many debts without demands for repayment, it’s important to take into consideration asset protection, debt settlement options, and qualifications for filing.
The decision to file for bankruptcy is not easy, and comes with both pros and cons based on situation. Bankruptcy attorneys take each case into consideration and advise appropriately. For more information about the bankruptcy process, call us at 817-335-4003 to schedule a free consultation.