Most people try their best to manage their finances properly. However, because of a lack of resources or hard times, some people find themselves in positions where they need to file for bankruptcy. This is not a decision anyone takes lightly, and most people do their very best to avoid it.
No matter why bankruptcy happens, it is essential to understand the full scope of what happens. This is a serious legal and financial matter, and as such particular protocol must be followed. Many people believe that declaring bankruptcy makes all your financial problems disappear, but this is far from the truth.
To understand what kind of financial debts can be eliminated by bankruptcy, it is important to understand what unsecured debt is. These debts come from loans that are not secured by a guarantor, meaning that the bank has no backup plan or alternative option if you do not pay them back. Secured debt, on the other hand, is backed up by collateral or some guarantee.
For example, some loans require putting up your home, business, or life insurance policy as collateral. This means that if you cannot pay the money back, the bank can take your collateral as payment. But, again, this occurs in a secured debt.
Unsecured debts, on the other hand, do not have collateral. For example, when you spend money on your credit card, you do not have to offer anything to the bank in return. The only promise is that you will pay the money back with whatever interest is outlined in your credit card contract.
When you file for bankruptcy, your secured debt does not go away. The person or organization owed money can take the collateral, even if you don’t have the cash to pay.
Bankruptcy means that your nonpriority unsecured debts will be forgiven or “wiped out.” Examples of nonpriority unsecured debts include:
This is a significant amount of money, in some cases. Though there are stipulations to some of these, bankruptcy has immense power to reset a person’s financial life.
However, these benefits are not without downsides. You will lose some privileges along with your bankruptcy filing.
It is essential to understand that bankruptcy can have an impact on your immediate financial situation. For example, you may have a more difficult time finding credit cards with reasonable rates, and you will likely not be able to find a loan unless it has a significant amount of interest associated with it. You also may have to put down a security deposit or valid collateral for future lines of credit or loans.
Filing for bankruptcy does not necessarily mean that all your financial problems will disappear. Though many people find a new start after filing for bankruptcy, they are still obligated to pay certain debts and fees. Some of these include:
These will still be your responsibility following your case. Though this can be a significant amount of money to still owe, the great majority of debt lies in the categories eliminated by filing for bankruptcy.
There are two different ways to file for bankruptcy, referred to as Chapter 7 and Chapter 13. These methods dictate what the bankruptcy process will look like and if you are responsible for debts following the process.
Chapter 7 is sometimes called liquidation bankruptcy. This is because the government assesses and liquefies your assets to pay off some of your debts. This can include foreclosure. However, the court has the discretion over what can remain in your possession and what must be sold to compensate for the debt you owe.
Chapter 13 is a bit different. Instead of selling your possessions to make up for your debt, Chapter 13 bankruptcies start you on a payment plan to pay off a portion of your debts. Though you will still owe money, it is often much less than the original amount of your debts. This version also protects you from suffering foreclosure or having to sell your assets.
Different people file for different chapters depending on their situations. Therefore, no one type of bankruptcy is best; it is an entirely individual choice.
It can feel counterintuitive to turn to an attorney for help when you are already filing for bankruptcy. However, we can provide incredible help and resources to you if you are suffering financial hardship. The bankruptcy process is complicated, and there are a lot of details that need to be sorted. Without the help of an attorney, the process often feels daunting.
What’s more, it is difficult to know whether Chapter 7 or Chapter 13 bankruptcy is better for your situation. It isn’t easy to see the right path clearly and objectively when you are in a bleak financial position. However, an experienced bankruptcy attorney can help you decide which method is suitable for you and help you navigate the world of bankruptcy law. The process is not easy, but it can have a profound positive impact on your life.
Here at Steele Law Firm, we believe that everyone should have a place to turn when financial hardship occurs. For many years, our attorneys have been helping people get back on their feet and file for bankruptcy in a way that works for them. Not only do we understand the legalities of this process, but we are also familiar with the emotional toll bankruptcy can take. We are here to help you through it.
For more information, contact us today.