If you are reading this article, you are likely asking yourself whether declaring bankruptcy is the right way to manage your debts. While making this decision takes research and careful thought, its best to decide sooner rather than later to place yourself in a better position for success.
Below is a quick article to help you in deciding whether bankruptcy can help your financial situation, some points to consider, and where to contact an attorney for help.
Chapter 7 vs. Chapter 13
We could spend quite some time going into the differences between Chapter 7 and Chapter 13 bankruptcy, but for the purposes of understanding the advantages of filing, we will just need a quick overview.
Chapter 13 (repayment)
Chapter 13 is designed to help you “catch your breath.” Chapter 13 is the longer of the two filings to complete, but stays on your credit report for a shorter period of time.
This is the most common type of filing for someone who, for example, unexpectedly lost their job for an extended period of time and is now trying to stop a foreclosure.
This would come through entering a mortgage arrearage and distributing past-due payments over a period of three-to-five years.
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. This is so you can avoid making multiple payments to multiple creditors, and instead just make one monthly payment to your trustee.
In almost every Chapter 13 case, interest on credit cards and other unsecured debt is completely frozen.
Chapter 7 (liquidation)
Chapter 7 is designed to help you get a “fresh start” to your debt and finances. This is the most common type of bankruptcy for someone who has an unmanageable amount of medical or credit card debt, as it cleans the slate of these expenses.
Compared to Chapter 13, this type of bankruptcy is shorter to complete but stays on your credit record for longer.
It must also be noted that to qualify for Chapter 7 bankruptcy, you must meet certain income requirements. If your income is higher than allowed, then Chapter 7 may not be an option for you. To know for sure in your situation, you need to get me copies of your paystubs for the last six months so that I can determine where you land on the means test.
Unfortunately, in both cases your credit score will take a hit. While this is unavoidable, it does not outweigh the benefits of filing for bankruptcy.
Bankruptcy Advantages: Forgiven Debt and Buying Time
Federal Bankruptcy Law 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 case to determine your best options.
Chapter 7 and Chapter 13 bankruptcy can have both pros and cons depending on your situation, but generally individuals who file are the ones who desperately need the benefits no matter the cost. 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 shortly after your bankruptcy case completes.
For struggling individuals, filing bankruptcy can offer necessary relief from impossible payment demands and harassing phone calls. Below are some of the top advantages to filing.
A Final Note on Automatic Stays
The automatic stay is a financial lifeline for many individuals. Essentially, the moment you file for bankruptcy you get protection from your creditors via the automatic stay. This means they cannot collect on their debt, cannot badger you with phone calls, and cannot take your vehicle away from you.
While it is normally active the entire duration of the bankruptcy, this can change under a few circumstances.
This first circumstance is if a creditor wants to pursue you after your case is filed, they can file a Motion for Relief from the Automatic Stay. If this is granted by the court, your stay will no longer be in effect and your creditors can begin collection attempts again.
The second circumstance is when you have filed for bankruptcy more than one time. Refiled bankruptcy cases have different rules that depend on the dismissal dates. If you want to know how your prior bankruptcy cases may affect a new filing, take advantage of a free consultation and get legal advice from an experienced bankruptcy attorney.
Contacting a Bankruptcy Attorney
I have been practicing law since 1998 and have over 22 years of consumer bankruptcy law under my belt.
I understand how important it is for individuals to get the financial help they need in times of trouble and I dedicated my law office to doing just that. With our experienced staff of attorneys, you can call anytime for a free consultation at (770) 809-3099 and start discussing the advantages and disadvantages to filing Chapter 13 and Chapter 7.