Bankruptcy: Chapters 7 and 13

Most people who are truly financially incapable of paying their debts are potential candidates for a personal bankruptcy filing.

However, factors like your income, the amount of your debt, and your ability to repay will factor into whether you can file – and what type of bankruptcy you can file for.

One qualification for bankruptcy is that your current monthly income must be less than the median for your state.

If it isn’t, you must pass a means test that examines your disposable income and shows you can afford to repay at least part of the debts that you owe.

Furthermore, you cannot have discharged debts through bankruptcy within the last 8 years.

A court may also reject your bankruptcy filing if it is determined you have in any way defrauded your creditors. Recklessly running up debts, hiding assets and lying about income or debts can all signal to a court that you have acted to defraud creditors.

And while there is no debt limit for Chapter 7 bankruptcy, the total allowed limit for secured and unsecured debts in a Chapter 13 bankruptcy is $2.75 million.

Bankruptcy usually only eliminates or restructures unsecured debts, and even then, it won’t discharge all of them.

Secured debts can be eliminated by liquidating the assets used to secure them, but that means that you will lose those assets.

Examples of unsecured debt:

• Credit card debt
• Medical debt
• Personal loans

Examples of secured debt:

• Mortgages
• Car loans
• Anything borrowed with collateral

Student loans, child support or alimony, and most tax debts will ordinarily not be forgiven under a bankruptcy.

These sorts of details are why it’s important to learn what to expect from bankruptcy – and to know what kind of bankruptcy might be best for your situation – before deciding to begin the process.

For this reason, talking to a bankruptcy lawyer is a highly recommended first step.

Not necessarily. Many people get to keep their homes, cars and even their retirement accounts if they play their cards right.

Good legal representation and expertise can help with this immensely.

An experienced bankruptcy lawyer can figure out what type of bankruptcy is best for your needs, give you a realistic view of what you can and cannot keep, and advise you on how your bankruptcy will affect your financial future.

The type of bankruptcy you file for and how your asset liquidation or repayment plan is structured will greatly affect what you get to keep after a bankruptcy.

This is why most experts recommend seeking legal help with a bankruptcy filing.

There’s no way around it – bankruptcy does do damage to your credit.

However, it’s important to remember that your credit is likely already distressed if you’re thinking about a bankruptcy – or if it isn’t, it likely will be soon.

Another thing to know is that a bankruptcy won’t affect your credit score forever.

A bankruptcy stays on your credit history for 10 years, but you can begin rebuilding your credit as soon as you file.

On-time payments go a long way toward restoring good credit, and a good repayment plan can help you take real control of your finances.

Many people are shocked to hear that you can still borrow money after a bankruptcy for things like a home or a car, although you will likely have to pay higher borrowing rates.

A proper bankruptcy filing also doesn’t have to affect your spouse’s credit – filing may even protect your spouse and keep them from being pursued by creditors.

Many people worry about the cost of hiring a bankruptcy lawyer and wonder if they can save money by filing themselves.

While you can legally file for bankruptcy yourself, common missteps can cost you – and your filing may even be dismissed by the court.

Determining whether you’re eligible is the first hurdle you’ll need to overcome.

Next, knowing what kind of bankruptcy is right for you, how to value assets, what kind of property exemptions to claim, and even the optimal timing for your filing can have an enormous effect on how much you’ll get to keep and how much you have to pay.

Just filling out the paperwork can be daunting, and you will also have to file a detailed repayment plan if you’re filing for Chapter 13. Any repayment plan will need to be realistic in the eyes of the court and conform to certain stringent legal requirements.

Creditors can also fight your requests for debt discharge, so you may need a lawyer who can fight for you in court.

Moreover, navigating the bankruptcy process can be frightening and overwhelming on top of all your existing financial pressures, and having an expert by your side can make the process much easier.

Luckily, there are many good ways to pay for legal representation during a bankruptcy – even if you’re stretched thin – and an experienced bankruptcy lawyer should be able to explain them to you.

As soon as you file for bankruptcy, your payments to your creditors can be stopped. This can sometimes free up enough money to pay your lawyer.

There are also ways your bankruptcy repayment plan can be structured to allow for the payment of legal fees.

In short, you are legally allowed to take money you would otherwise give to your creditors and use it to pay your bankruptcy attorney.

This can be money well spent if it lowers your financial repayment obligations or allows you to keep more of your assets.

It can be easy to make catastrophic mistakes along the way if you try to file for bankruptcy on your own, and there are also pitfalls you can fall into if you hire a lawyer who doesn’t have the right experience for your case.

Make sure you have a skilled and experienced bankruptcy lawyer on your side, or at least consider consulting with one before going it alone.