The last few months were difficult on consumers in this country, especially families who were already dealing with debt. Bankruptcy may provide a fresh financial start when debt becomes insurmountable. Before undertaking this serious step, however, you should be aware of its advantages and disadvantages.
Chapters 7 and 13
There are two major filings. Chapter 7 bankruptcy provides for the repayment of some debt if the debtor passes a means test. A federal court trustee supervises the sale of any non-exempt assets with the proceeds being used to pay off creditors. The debt balance is eliminated after the bankruptcy is discharged.
Chapter 13 discharges all debt. It allows debtors to keep their property in return for partially or completely paying off the debt. This filing is typically used by debtors trying to keep their nonexempt property intact or delay foreclosure or seizure of property.
Bankruptcy may be used as a financial life preserver, especially if enhanced unemployment compensation benefits end. Filing may be appropriate when debt becomes an excessive weight on your life, and you exhausted all other methods to manage and lower your debt.
Filing for bankruptcy ends wage garnishment, levies of bank accounts, property and home foreclosure and other collection activities. It may provide a new financial beginning and reduce the stress caused by excessive and unmanageable debt.
Bankruptcy does not eliminate all your financial problems. Chapter 13 may require payment of the entire debt, for example. This may take three to five years and remain on a credit report for up to 10 years.
Bankruptcy may add obstacles to jobs requiring a security clearance or licensing. Insurance rates may increase, debtors may be classified as a high risk, and you may have to pay higher fees and rates for loans. Obtaining loans and credit cards is much more difficult. Filers usually do not qualify for a mortgage.
Tax debts and student loans are usually not dischargeable. If the debtor is a co-signer, the other borrower is responsible for the discharged debt.
There are many options to deal with debt, however. An attorney can explore reasonable options and assure these meet legal requirements.