Right now millions of Americans are dealing with financial distress. Loss of jobs, income freezes, mortgage foreclosures, lack of health insurance, divorce – any of these can cause a family to find itself in the bring of disaster. Personal bankruptcy is a way to put some of your debt burden behind you and start on a new footing to rebuild. But is it the right choice for you?
Some of the bankruptcy chapters that apply to individuals are Chapter 7 and Chapter 13. When you’re making a decision to file for bankruptcy under either one, there are many considerations to think about. For example, not everyone can file a Chapter 7 any longer, since the laws were changed in 2005 to require a means test. In other words, you have to provide you really can’t make payment son your debt. If you fail the means test, the bankruptcy judge can move your case into a Chapter 13 filing. A personal bankruptcy then could happen under either of these sections.
With a Chapter 7, you are able to discharge most of your debts and get rid of for example credit cards, other unsecured debt, and so on. Keep in mind though that you will also probably lose your cars (if you do no reaffirm your car loan debts) and possibly your house (if you aren’t able to make the mortgage payments). In Chapter 7, the court basically sells everything you have, or returns it to the lenders, in order to pay what can be paid, then wipes away the rest of your debt. Under certain state law, you may be able to keep some items, for example cars that you need to get to work. Best to check with an attorney to see what can be done in your state.
With a Chapter 13, you submit a repayment plan, and then you have thee to five years to follow your repayment plan. In this case, a debtor with a regular job will probably have to repay some debts, and not be able to discharge them as in Chapter 7. This can help though if you want to try to keep your home, or car or other assets.
One thing you must remember is that filing personal bankruptcy will not remove all of your debt. If you have support obligations for spouse or children, or if you have back taxes you owe, or student loans, those are just some of the debts that can’t be avoided. So if that is the bulk of what you owe, bankruptcy may not be for you. Better to try to figure out a way to work out repayment plans directly with the lender or the tax authority.