Deciding to declare bankruptcy is an important decision that will impact you and your finances for many years. Whether you choose to try to fix your debt problem on your own or to declare Chapter 13 or Chapter 7 bankruptcy, you will experience an impact on your credit, your ability to get a loan, and possibly your employment.
However, there are times when there is simply no better option than Chapter 13 or Chapter 7 bankruptcy. In fact, taking action as soon as possible is your best option for stopping wage garnishment, preventing foreclosure on your home, preventing repossession of your vehicle and stopping harassing phone calls.
Taking all of this into consideration, there are times when declaring bankruptcy is a better option than the consequences of ignoring unpaid debt.
Declaring bankruptcy can allow you to resolve financial problems once and for all, rebuild your credit and get peace back into your life.
If it sounds like you might be a better candidate for filing bankruptcy than trying to resolve your debt problems on your own, then read on. This article will talk about some of the benefits of filing bankruptcy.
Why Consider Filing for Bankruptcy?
Chapter 7 and Chapter 13 bankruptcy can have both advantages and disadvantages, depending on your situation. Some benefits of bankruptcy include:
Filing for bankruptcy will trigger an automatic stay, which is a legal term that means your creditors will need to stop collection action immediately. They will not be able to repossess your car, foreclose on your home, call you, send you collection letters or file a lawsuit against you.
In some cases, bankruptcy might allow you to discharge certain debts altogether.
In some cases, you can go through the bankruptcy process without losing any of your property, including your car and your home.
You might be able to begin rebuilding your credit immediately after filing for bankruptcy.
Is Chapter 7 or Chapter 13 Bankruptcy Right for You?
The state of Georgia requires a “means test” to determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy. When we meet with you to review your situation, we will apply these tests to your situation to determine your best options.
If you file Chapter 13 bankruptcy, you will be able to immediately stop collection calls and lawsuits while you make payments on the debts you owe. You also will be able to stop any foreclosure action, vehicle repossession, and .wage garnishments, These are the benefits of the “automatic stay.”
Chapter 13 bankruptcy does require a repayment plan that we will help you work out. You do not need to get permission from your creditors to create the repayment plan. Also, the amount you will pay each month will be determined by what you can afford to pay and not what your creditors demand.
To figure out that monthly payment amount, I will propose a budget for you and a manageable monthly payment amount. Your payments will be paid to a trustee appointed by the court, and not directly to your creditors. And instead of making multiple payments to multiple creditors, you will make one monthly payment to your trustee.
While you make your Chapter 13 payments, all future interest and penalties will stop.
Another bankruptcy option is Chapter 7 bankruptcy, which is intended to erase most or all of your unsecured debts. These are debts like credit cards, car loans, medical debts, and so forth.
With Chapter 7, you will not need to make any payments to those creditors and you will not need to set up a repayment plan with a court trustee.
However, Chapter 7 bankruptcy is more complicated to arrange than Chapter 13 bankruptcy.
To qualify for Chapter 7 bankruptcy, you must meet certain income requirements. If your income is higher than allowed, then Chapter 7 will not be an option for you.
If Chapter 7 is an option, you will have a court-appointed trustee assigned to your case. The trustee will be responsible for reviewing your paperwork and selling your nonexempt property. Any proceeds from the sale of your property will go to pay debts the court will not allow you to discharge, such as child support and back taxes you owe to the IRS. Your other creditors, however, will not receive any payments from you or the court.
I often refer to Chapter 13 bankruptcy as the “catch your breath” option and Chapter 7 bankruptcy as the “fresh start” option. Both have advantages, and both have long-term consequences. Which is better for you?
If you owe more on your car than it’s actual value, Chapter 13 bankruptcy might be a better option for you than Chapter 7. For example, if you’ve owned your car for more than 2.5 years, Chapter 13 may require you to pay back the value of the car instead of the larger amount you owe.
There’s an interest rate benefit as well because of Chapter 13 bankruptcy caps vehicle interest rates at five-to-seven percent. This is almost always much lower than your existing auto interest rate.
Another benefit could be on mortgage arrearage. This is because Chapter 13 bankruptcy allows you to spread out repayments of your past due to payments over a period of three-to-five years.
If you have a second mortgage, then Chapter 13 bankruptcy can eliminate the second mortgage altogether.
However, Chapter 7 bankruptcy can have several advantages. For one, it’s cheaper than Chapter 13 because Chapter 13 requires a monthly payment plan for up to five years. Also, Chapter 13 fees are higher than the fees for Chapter 7.
The timeline is another advantage. Chapter 7 bankruptcy is usually a three-to-four month process and rarely lasts more than a year or two. This allows you to begin rebuilding your credit very quickly.
When Should You Contact Me?
Whether bankruptcy is the right solution to your financial problems depends on your income, your debts and any property you might be able to protect. If you are contemplating bankruptcy, you should contact me immediately to schedule a free consultation.
I will look at your situation and discuss your best options for getting your debt problems resolved as quickly as possible.