Stuck in a bad financial place, and contemplating whether or not filing for bankruptcy is the right path to take? The reality for so many adults, is that their financial situation and mistakes from the past continue to haunt them and cripple them for years. For some, bankruptcy is the right solution to move past the debt and get started on a new, financially free life.
How to file
Bankruptcy should be carefully considered, as there are consequences to filing. Declaring bankruptcy is the only legal way to get rid of your debts short of paying or settling them. The process can be managed well with the careful guidance of a qualified attorney. You’ll also need to have a comprehensive understanding of all of your assets and your outstanding debts. Your assets are divided into two different categories.
-Exempt Assets. These are assets that cannot be used to pay off your debts, such as some parts of equity in your home or cars, and personal items.
-Non-exempt Assets. Things that are not protected from being taken by the court appointed trustee in a Chapter 7 yet can be protected in a Chapter 13.
Likewise, your debts will fall into two different categories.
-Secured debts. These are loans/debts where the creditor has security interest in the property, and is provided as collateral. This could be a second home, boat, car, etc.
-Non-secured debts. These are debts that aren’t tied to personal property, such as credit card debt, medical bills, personal loans, etc.
The difference between chapter 7 and chapter 13
A lot of people don’t realize that there is more than one type of bankruptcy. Before selecting which chapter is best for you, you should understand what each one entails.
-Chapter 7. This is a liquidation option that lets you keep your exempt assets, and most of your unsecured debts are eliminated. Your non-exempt assets will be used to pay your debts. Debts like student loans, child support, some taxes, etc. will not be discharged. This chapter of bankruptcy is usually best for people with few assets and more debts.
-Chapter 13. With Chapter 13, you are given a time period to repay a portion of your debts within 3-5 years with a repayment plan. You will have a trustee that you will send payment to in order to be distributed to your creditors. With this, you can be permitted to keep your home, which will prevent foreclosure. This type of bankruptcy is preferred by people who want to keep all of their assets, or want to buy time before a foreclosure.