Understanding Options Including Bankruptcy For Discharging Your Debts
If you are besieged by debt, you may be considering filing for chapter 7 or chapter 13 under the U.S bankruptcy code. While it is true that bankruptcy can offer an easy way out of debt, as well as a fresh financial start, there are some rather important things to take into consideration before taking the big leap. Bankruptcy may or may not be in your best interests, it all depends on several factors including your unique financial circumstances. Please do consider the following information if you plan on filing for a Chapter 7 or Chapter 13 bankruptcy.
First of all not all debt will be wiped out via a bankruptcy. For example student loan debt cannot be discharged, with the exception of a few very rare circumstances. Alimony and child support can not be discharged, nor can tax debts from the last 3 years. Criminal restitution and fines also cannot be discharged via bankruptcy. So what can be discharged? Any unsecured debt, such as medical, credit cards, loans, money owed on a repossession or foreclosure. Any debt that is secured by property means you can indeed loose that property, although you might be able to keep it in some circumstances and depending on what chapter you are filing for.
The question as to whether or not you can keep your property after filing a bankruptcy largely rests on which chapter you are filing for. If you opt for chapter 13 then yes you can keep all of your property. In exchange the judge will order a partial repayment plan that will last at least 3 years but no longer than 5 years. This is however contingent on you keeping up with the agreed upon debt repayment plan that is ordered by the court. If you are facing foreclosure, chapter 13 can indeed save your property, but yes you will have to pay something, but the terms will likely be terms that you can afford, and once the 3 to 5 years are over with, you will own your home free and clear.
In a chapter 7 bankruptcy all of your debts that can be discharged are fully wiped out, but any non exempt property may be seized, then sold, with the proceeds going to all of your creditors. State law will dictate what property is exempt or not. exemptions often include some or all of the equity in your home and/or car, your retirement funds, any entitlements you receive, and most personal property. Chapter 7 produces many problems if you are facing foreclosure and wish to keep your home.
If however you are besieged by debts that you can never hope to repay, and the bulk of this debt is medical and credit card, and you have no property, or are willing to walk away from said property, chapter 7 may well work for you. I should point out that any new debts incurred after filing will not be eligible for chapter 7 or any chapter of bankruptcy, so do make sure all debts are accounted for, before filing. Sometimes it makes sense to delay filing of a bankruptcy to make sure you have all your ducks in a row.
One time it makes sense to delay the filing of a bankruptcy is if you are trying to save your house. Once you file you can no longer negotiate with the bank or lender, since bankruptcy will cancel the promissory note part of your mortgage, however the lien itself remains intact. This will make it impossible to negotiate a mortgage modification for example.