Many people believe that filing for bankruptcy represents some type of financial failure, but that’s not necessarily the case. Filing for bankruptcy can benefit people who are experiencing financial troubles, but it’s not right for everyone. If you are dealing with financial hardship, it’s important to discuss your situation with an experienced bankruptcy lawyer.

Filing for bankruptcy is an option for people who are struggling financially, but it’s not the only option. Before you make this decision, it’s important to learn exactly what filing for bankruptcy entails. 

The Different Types of Bankruptcy

Individuals typically file for either Chapter 7 or Chapter 13 bankruptcy. 

Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” This is because people who file for Chapter 7 bankruptcy must liquidate their assets in order to repay their creditors. However, this does not mean that you will lose all of your personal property if you file for Chapter 7 bankruptcy. The law allows people who file for Chapter 7 bankruptcy to hold onto certain types of property, including equity in your primary home and up to $7,500 equity in your vehicle. Most debts are discharged in Chapter 7 bankruptcy, which allows debtors to wipe their slates clean and start anew. 

Chapter 13 bankruptcy is typically referred to as the “repayment plan bankruptcy.” If you file for Chapter 13 bankruptcy, you will be required to create a repayment plan that outlines how you will pay off your debts. If the plan is approved, you will need to closely follow its terms for the next three to five years. Whatever debts remain at the end of the repayment plan are typically discharged.  

What Are the Alternatives to Bankruptcy?

Filing for bankruptcy is one way to deal with debt, but it may not be the best way, depending on your financial situation. It is recommended that borrowers explore some other alternatives before filing for bankruptcy.

Some of the most common alternatives to bankruptcy include credit counseling, debt settlement, and loan modifications. If you are not sure what’s right for you, speak to a bankruptcy attorney to learn more about these options.

Eligibility For Chapter 7 and Chapter 13 Bankruptcy

There are certain conditions that you must meet in order to file for Chapter 7 or Chapter 13 bankruptcy. It’s important to understand these eligibility requirements before deciding if bankruptcy is right for you.  

For example, you cannot file for Chapter 7 bankruptcy unless you are able to pass the “means test,” which is used to determine if your disposable income is low enough to qualify for bankruptcy. If you want to file for Chapter 13 bankruptcy, you must have a steady income and enough disposable income to make regular monthly payments to creditors.

Which Debts Are Discharged?

Some debts are discharged during bankruptcy, whereas others are not. If you are considering filing for bankruptcy, you need to know which debts are discharged to determine if bankruptcy will improve your financial situation. 

For example, it is not possible to discharge child support or alimony debt in either Chapter 7 or Chapter 13 bankruptcy. If this is the main type of debt you have incurred, filing for bankruptcy is not the right option for you.

What Happens to Your Home After Filing for Bankruptcy?

Many people who are considering bankruptcy are in danger of losing their homes due to missed mortgage payments. No one wants to lose their home, which is why you should learn what happens to your house if you choose to file for bankruptcy.

Mortgages are not discharged during bankruptcy. Filing for bankruptcy can temporarily halt foreclosure proceedings, which will buy you more time to sort out your finances. However, the lender can move forward with proceedings once your bankruptcy case has been closed.

Each case is unique, but in general, most people who file for Chapter 13 bankruptcy will be able to retain ownership of their home.

Will Your Credit Card Debts be Cleared?

If you file for Chapter 7 bankruptcy, you will be required to sell certain assets in order to repay your creditors. The sale of your assets will probably not cover all of your debts. But, the remaining balances on most debts are discharged in Chapter 7 bankruptcy. This includes credit card debt. 

If you file for Chapter 13 bankruptcy, you will be required to make monthly payments to your creditors to pay off your debts. This includes credit card debt. The repayment plan usually lasts for three to five years. After these three to five years, the remaining credit card debt will be discharged as long as you have closely followed the terms of the repayment plan.

Do You Have a Pension Plan in Place, is it Safe?

Some types of pensions are fully exempt, which means they cannot be touched in bankruptcy, whereas others are partially exempt. If a pension is partially exempt, you may lose a portion of it by filing for bankruptcy. There are also non-exempt pensions. If you have a non-exempt pension, it is possible that you could lose all of it by filing for bankruptcy. For this reason, it’s important to review your pension plan with a bankruptcy attorney to learn what you should expect.

Discuss Your Options With An Attorney

Bankruptcy is a complex process that is not right for everyone. Filing for bankruptcy is a major decision that will impact your life for years to come, which is why you shouldn’t take this decision lightly. Before filing for bankruptcy, meet with an experienced attorney to discuss your financial situation. This ensures that you can explore all other options before officially filing for bankruptcy.