It can be scary to think about, but many of us are just an accident or setback away from being in financial hardship. Though we like to think that we can control our financial lives, the truth is that we can’t always do that. So, despite our best efforts, bankruptcy is sometimes the only option.
Nobody wants to file for bankruptcy, but it does offer an immense amount of financial freedom. Rather than trying to find your way out of deep debt, you can focus on rebuilding a new life for yourself and your family.
If bankruptcy is your next move, it is essential to understand some details about it. Unfortunately, this system has more complexities than meets the eye, and individuals often feel confused when going through the process.
One crucial fact to know is that there are two types of bankruptcy that you can file: Chapter 7 and Chapter 13. Chapter 7 involves liquidating some of your assets to pay down the money you owe. So, for example, the bank could take items such as your car, your electronics, or even your home in foreclosure to minimize the amount of debt that has to be forgiven. Though this is not necessarily a pleasant process, it does help to end things quickly.
Chapter 13, on the other hand, does not require you to sell off any of your possessions to pay your debt. However, Chapter 13 requires you to pay off a portion of your debt over a period of time. Generally, this period is several years. Though this does not completely free you of financial responsibility, it does minimize the burden that the payments present every month. It also helps you to keep your home and possessions.
Many people wonder if there is a debt threshold to file for Chapter 7 bankruptcy. The answer, put simply, is no. Though there is a debt maximum that can keep individuals from filing for bankruptcy, there is no minimum requirement to file for bankruptcy.
However, it is important to understand that bankruptcy is no walk in the park. There are consequences, and the process should not be taken lightly.
Since there is no debt minimum for bankruptcy filings, you may wonder why more people do not rid themselves of debt by going through the process. Unfortunately, there are significant downsides to filing for bankruptcy, and those negatives must be weighed against any perceived positives.
Primarily, filing for bankruptcy significantly affects your credit. This means that after the process is done, you may have a difficult time finding a credit card with a desirable interest rate. You also may not be able to take out loans without significant collateral. And insurance companies often set their rates according to your credit score, so you may pay higher insurance premiums. Bankruptcy often makes banks and financial institutions hesitant to give you money, because they believe that they may not get it back.
Second, there are fees associated with filing for bankruptcy. Though this may seem counterintuitive, these funds are often required to gain access to credit counseling and legal advice, which help you navigate the bankruptcy process and build a better financial foundation after the process is finished.
Another important consideration should be whether your debts will be discharged when you file for bankruptcy. Though this process does eliminate a fair amount of what you owe, it cannot rid you of all your debts. If you have more debt in areas that cannot be avoided by bankruptcy, the process will be for nothing.
Dischargeable debt includes:
If the majority of your debt is in one of these categories, bankruptcy could have a significant impact on your financial life.
However, if most of your debt comes from secured loans, your debt will likely remain where it is. Secured loans are debts that you put up collateral for. For example, when you take out loans above your borrowing limit, the bank requires you to put up a significant asset, such as your home, as collateral. This means that if you cannot pay your debts or if you file for bankruptcy, they can take your collateral as payment.
Items that cannot be discharged include:
You can see how filing for bankruptcy does not help everyone. If you owe a large amount of back taxes, for example, filing for bankruptcy will not eliminate them because they are not dischargeable.
Many people are hesitant to hire an attorney during a bankruptcy case because they are hesitant to spend more money. However, a bankruptcy attorney can help you navigate the complicated financial system and build a new life for yourself. We can help you to decide if and how to file for bankruptcy and a system that will work for you going forward. We also make sure that you disclose all pertinent information and the courts and loan officers do not take advantage of your position.
For many years, the attorneys at Steele Law Firm have been protecting individuals looking to build a better financial future for themselves. Whether you are seeking a Chapter 7 liquidation bankruptcy process or are curious about Chapter 13 options, we are here to help you make the right decision for your financial situation. We believe that everyone should have access to money management knowledge, and everyone deserves a second chance after hard times. We are here to help, not judge, and get you back on your feet as soon as possible.
For more information or to schedule a consultation, contact us online today.