You might consider declaring bankruptcy if your debt has gotten out of control, but do you know the true cost? You can file for different types of bankruptcy, depending on your situation. The most common types are Chapter 7 and Chapter 13 bankruptcy, as the others pertain to specific occupations, locations, and organizations
Even after filing for bankruptcy, you may still need to pay your debtors. The laws about bankruptcy help change every few years, so it may not erase your debt completely. Find out how filing for bankruptcy could potentially help or hurt your financial future.
Chapter 7 bankruptcy is the most common filing classification for individuals who meet the qualifications. A court-appointed bankruptcy lawyer or trustee oversees the liquidation process. Liquidation is the process of selling anything of value, such as vacation property or vehicles, to try and pay off your debt.
Declaring bankruptcy is typically the last option for resolving debt. In some cases, the consequences of bankruptcy could outweigh the benefits. Before you can file for bankruptcy, a court may require you to take an approved credit counseling course within 180 days prior to filing.
The process starts with a bankruptcy consultation to help determine your disposable income based on your salary, living expenses, property, and collective debt.
During this time, the court places a temporary halt on your debts to stop creditors from:
- Collecting payments.
- Foreclosing on your home.
- Evicting you from your home.
- Garnishing your wages.
- Repossessing property, like vehicles.
- Turning off utilities.
However, in doing so, the court also takes legal possession of your assets, which are things of value. These can include physical assets like furniture, jewelry, and vehicles and real estate, as well as intangible property, like money in bank and retirement accounts. Then, the court sells these assets to creditors and other entities to pay off your debts.
Filing for Chapter 13 bankruptcy could leave you with few resources. However, the government exempts some assets and property, so you will not lose those exempted items.
Finally, the government discharges any applicable unsecured debts, like credit card debt and medical bills.
Some debts cannot be discharged during bankruptcy; you’ll typically still need to pay the following forms of debt:
- Alimony and child support
- Student loans
- Personal injury debt
- Certain government taxes, penalties, and fines
- Court fines and criminal restitution penalties
- Some homeowners’ association (HOA) dues
- Legal fees for child custody cases
It may be prudent to get a bankruptcy attorney that you can afford, as debt laws can be difficult to navigate. For instance, the homestead exemption is currently set at $25,150, which means you may be able to save your home if you have less than this amount in equity. A legal professional is often able to explain the federal exemptions as they apply to your case. Another way to resolve your debt is through filing for Chapter 13 bankruptcy, a process that lets you keep your personal property. Discover how you may be able to keep your home and resolve your debt with this bankruptcy alternative.