When should I file for a bankruptcy?
There are many factors to consider when deciding if a bankruptcy is right for you. These will vary in importance for different people, but some of the most common are:
- Am I at risk of being hurt financially by my creditors? Am I at risk of wage or bank account garnishment, repossession or even foreclosure?
- Have my consumer debts (credit cards, medical bills, payday loans) reached the point where I can't afford to pay them all each month, or is that time coming soon?
- Have I been living on my credit cards, and paying the minimum payments with my income?
- Am I being harassed by creditors, by phone calls, letters and threats of lawsuits and garnishments?
If the answer to any of these questions is yes, you should contact me to discuss your options, either bankruptcy or an alternative solution.
What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?
A Chapter 7 Bankruptcy is used primarily for people who have an average-to-below average income (and some businesses) to get rid of consumer debts. Consumer Debts include the following:
- Credit cards
- Medical bills
- Payday loans
- Automobile repossession deficiencies
- Old utility bills
Chapter 7 Bankruptcies can also discharge certain taxes, and allow you to walk away from a bad car or house loan, should you desire. The process is usually over within 6 months of filing, and you leave the Chapter 7 with a "fresh start."
Chapter 13 Bankruptcies are structured differently than Chapter 7s. We work together to craft a Chapter 13 Repayment Plan, which can help you get back on your feet. A Chapter 13 can help you do the following:
- Stop a foreclosure or repossession
- Pay back taxes and domestic support obligations
- Keep property you might lose in a Chapter 7 bankruptcy
Chapter 13 also provides bankruptcy protection for higher income debtors, allowing them to create an affordable repayment schedule that is fair to all sides.
Deciding which chapter of bankruptcy, if any, is right for you can be difficult. It is best to consult with an attorney before deciding.
Will I lose my property if I file bankruptcy?
Most people go through bankruptcy and do not lose their personal possessions. State law provides for protection (exemptions) of certain assets, which attempt to cover those items necessary for reasonable living. Some assets are difficult or impossible to protect, and we will be happy to help you find out what you can keep and what you might lose.
Does a bankruptcy get rid of all my debts?
Not necessarily. Certain debts are non-dischargeable unless paid in full. Common examples include certain taxes, child support obligations, and most student loans. Bankruptcy can help you be able to afford those obligations, however.
Will filing bankruptcy ruin my credit forever?
Actually, some clients have improved their credit scores immediately upon completion of a bankruptcy. Your access to prime rates of credit will be impacted for some time, but many of my clients are now successful homeowners even after a bankruptcy discharge. Your credit practices after bankruptcy are more important than the bankruptcy the farther from the discharge you go.
I have filed a bankruptcy before. Can I file another one?
It depends on what type of bankruptcy you filed, how long ago it was filed and discharged, and what chapter you are thinking of filing, but yes. You have the option of filing another bankruptcy. Contact us for more detail.
What if I don't want to file bankruptcy on a specific debt?
Federal law requires that all your debts and assets be listed in your bankruptcy schedules. Listing a debt does not determine how you treat it after bankruptcy. If you wish to pay back a creditor (perhaps a family member to whom you feel a moral obligation), you are free to do so voluntarily. Bankruptcy only keeps the creditors from chasing you for the money.
Will everyone know that I filed bankruptcy? What if my boss finds out?
Technically, a bankruptcy filing is a public record. But there are very few "lists" of bankruptcy filers that still exist, and none published in significant circulation. It is unlikely that anyone not mentioned in the paperwork will find out you have filed unless you tell them.
At work, it is generally illegal for an employer to discriminate against you because you filed a bankruptcy. More importantly, you should not feel ashamed that you filed a bankruptcy. It is legal, and more common than you think. You are taking steps to regain control of your finances, which is something to be proud of, even if you feel bad about the circumstances that led to your filing.
Is bankruptcy morally wrong?
That is not a question I can answer definitively, but I do not believe so. The American economic system is based in part on the existence of bankruptcy. It is what allows for risk-taking and entrepreneurship, giving a safety net when things go awry. Bankruptcy was so important to our founding fathers that it is enshrined in the Constitution itself. Abuse of debtors' prisons was a problem under King George III. Forgiveness of debt is mentioned in several places in Hebrew and Christian Scripture, including Deuteronomy 15:1-2:
At the end of every seven-year period you shall have a relaxation of debts, which shall be observed as follows. Every creditor shall relax his claim on what he has loaned his neighbor; he must not press his neighbor, his kinsman, because a relaxation in honor of the LORD has been proclaimed.
You may feel bad about reaching the point where you are considering filing a bankruptcy. That is understandable. But doing so does not make you a bad person. You are simply using the available law to do something hundreds of thousands of people do every year. Most creditors understand this, which is why they charge interest.