Filing for Bankruptcy
Bankruptcy is a legal proceeding in which a court examines the liabilities and assets of individuals who cannot pay their bills. Bankruptcy aims to give people in troubled financial situations a chance to start over and provide a fair outcome for their creditors
While bankruptcy provides you with debt relief, it may have long term legal and financial consequences. Before filing for bankruptcy, it is wise to speak with a bankruptcy attorney. You may also want to consider alternative options such as debt settlement.
In the United States, there are several types of bankruptcies an individual can file for. The most common are Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
If you are eligible for Chapter 7 bankruptcy, a court discharges all your qualifying debts and you are not obligated to make any more payments. A court uses the Chapter 7 Means Test to determine whether a filer qualifies for Chapter 7 bankruptcy.
This test evaluates your ability to repay your debts and whether you earn less than the average salary for your state.
If you qualify for Chapter 7 bankruptcy, the process entails creating an “estate” which is the temporary legal custodian of your assets. A court trustee is then appointed to administer your estate, and if you have any non-exempt assets, they gather and sell them. Finally, the court discharges unsecured debts such as personal loans, garnishments, medical bills, and credit cards. Some non-dischargeable debts include tax debts, most student loans, and child support.
Chapter 13 Bankruptcy
When filing for Chapter 13 bankruptcy, a court reorganizes your debt, making affordable monthly payments part of a strict repayment plan. This plan can range between three and five years, and your unsecured debts may be discharged if you make all your payments.
Should you file for bankruptcy?
As mentioned above, bankruptcy may not be the best debt relief option for everyone and recently the approval process has become stricter. Here are some pros and cons of filing for bankruptcy that can help you decide:
- One of the advantages of filing for bankruptcy is having your debts discharged. As a result, you are not obligated to pay your debts.
- Legally, debt collectors are not allowed to continue their collection activities while your bankruptcy case is pending.
- By filing for bankruptcy, you may be able to protect assets such as your car and home, allowing you to maintain your daily lifestyle.
- Filing for bankruptcy may adversely affect your credit as it stays on your credit report for 7 to 10 years, hindering your ability to apply for credit in the future.
- Not all debts can be discharged when filing for bankruptcy. Child support, alimony, fines, and most student loans are some examples.
If you want to get out of debt, there are alternatives such as:
- Debt settlement
- Debt management
- Debt consolidation
Benefits of Debt Settlement
Simple Debt Solutions provides a settlement service that can help you get out of debt for a fraction of what you owe and in a shorter time frame avoiding bankruptcy.
For further reading on bankruptcy please refer to the below sources:
We do not provide legal advice and urge you to speak with an attorney if you determine bankruptcy is right for you.
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