If you’re struggling with credit card bills, medical debt or mortgage payments, you’re not alone. You have legal options to get your life back on track. One option is bankruptcy. Bankruptcy is a legal proceeding provided by federal law in which a person who can’t pay his or her bills can get a fresh financial start. All bankruptcy cases are handled in federal bankruptcy court. Bankruptcy may be filed individually or by a married couple filing jointly.
Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, including wage garnishment, and debt collection harassment until your debts are sorted out according to the law. Bankruptcy may make it possible for you to eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It may also be used to stop foreclosure on your house or mobile home and repossession of your car, and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
Most consumers filing bankruptcy will want to file under either Chapter 7 or Chapter 13 of the Bankruptcy Code. In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out or discharge your debts in exchange for your giving up or liquidating your property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a Chapter 7 case probably will not be the right choice for you because Chapter 7 does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
A Chapter 13 bankruptcy allows you to keep valuable property–especially your home and car–which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In a chapter 13 case you are required you to make monthly payments over a three- to five-year period according to a strict budget monitored by the court.
In 2005, the United States substantially changed its bankruptcy laws, adding a “means test” that in most cases effectively prevents debtors making above the median income of the debtor’s state from filing for Chapter 7 bankruptcy. Most people who file for bankruptcy prefer Chapter 7, which requires no repayment. However, Chapter 13 bankruptcy is still the best way to handle specific types of problems, like curing a default on a mortgage.
Filing for bankruptcy is a major step toward financial renewal—and it’s not one to be taken lightly. Bankruptcy is not for everyone. Each case is considered individually, since everyone has different kinds and sources of income, as well as different types of indebtedness. For example, there are certain kinds of debts, such as student loans, that cannot be eliminated by any form of bankruptcy. We will thoroughly examine your situation in order for you to make intelligent and informed decisions as to which direction you should go, as well as explaining our recommendations of what is your best course of action.