Debt When You File for Bankruptcy
The reason most people find themselves filing for bankruptcy is that they have debt that has become overwhelming and they can't pay it back on their own. Life events like divorce, losing a job, or a major illness may have changed their circumstances so much that they cannot make payments on the debt they've accumulated. Or fees and penalties could have become impossible to handle.If you are in this situation, filing for bankruptcy might be the right decision. You will be able to have some of your debts eliminated, and you will end the process with a financial plan that will keep you on track moving forward.
Filing Chapter 7 or Chapter 13
There are two types of bankruptcy to consider, and you and your attorney will have to determine which is the right course of action for you. Your eligibility to file for a chapter 7 bankruptcy is based on your income and the size of your family. In a Chapter 7 bankruptcy, all of your assets are put together into an estate controlled by a trustee. The trustee then determines whether those assets should be used to pay back debts, and you could lose your property.A Chapter 13 bankruptcy is different in that it involves a payment plan. The court will look at all of your assets and debts, as well as your income, to determine how and if your debts should be paid back. Fees and collection efforts will stop, and you will make a payment towards your debts that will be applied based on whether the court determines them to be a high priority. Chapter 13 allows you to keep some property like your house or cars.
Secured or Unsecured
Debt falls into two categories. Secured debt is debt that is connected to an asset that you agree to return if the debt is not paid. For example, when you do not pay your car loan, the financing company has the right to take your car. Mortgage payments are another example of this type of debt.Unsecured debt is debt that is not connected to a piece of property or collateral. This would be debt like credit card debt, personal loans, and debt owed for medical procedures and treatment. The two types of debt are treated differently during a bankruptcy claim.
Credit Card Debt
Overwhelming credit card debt is the most common reason to file for bankruptcy. Credit card debt is unsecured debt, and in most cases, it will be eliminated if you file for Chapter 7. Filing for Chapter 13 is likely to discharge some of your credit card debt, but you will still be making payments under your payment plan. Your credit cards will no longer accrue interest.In both Chapter 7 and Chapter 13, collection agency representatives and credit card collectors will be barred from contacting you. Sometimes whether or not you have to pay your credit card debt depends on the way you have used the card. You should not charge more on your card after you've decided to file bankruptcy. That can be considered fraud.
Student Loan Debt
Student loan debt is unsecured debt, but it is treated differently in bankruptcy court than other kinds of debt. Student loan debt can be discharged during a bankruptcy, but it is very difficult. You may have to prove that paying back the debt causes you extreme financial hardship. The amount of time that has passed since you acquired the debt is also taken into account.Your student loan debt can be part of your payment plan in Chapter 13, but it is considered a low priority debt by the courts so it may be paid off at a slower rate and continue to accrue interest. However, student loan collectors will not be able to contact you if you file for bankruptcy.
The way a mortgage will be handled is one important factor in deciding which type of personal bankruptcy to claim. When you file Chapter 7 bankruptcy, you are putting your home at risk. If the bankruptcy trustee decided that you have enough equity in your home to make liquidation the best option, your house could be taken. There are exemptions to this that you will want to discuss with your bankruptcy attorney.In most cases, filing a Chapter 13 will protect your home, but you will be required to continue to make mortgage payments. Your payment plan will probably include money that you owe in mortgage payments that were never made. However, fees will stop accruing and you will have a chance to catch up on your mortgage.
Debt from personal loans is considered unsecured and is often discharged during bankruptcy. If you owe money to friends ad family, they may continue to ask for it, but they will not be able to sue you for it. In some cases, personal loan repayment may be part of your Chapter 13 plan.If you have a legal contract for a personal loan, you will want to discuss this with your bankruptcy attorney to determine how you should present it to the court. In most cases, the court will consider this an unsecured, low priority loan that you will not have to repay.
Debt from medical bills is another type of unsecured debt that can cause the need for bankruptcy. If you've been in an accident or had a serious illness, money owed to doctors and hospitals can add up very quickly, even if you have health insurance. People often get so behind in medical bill payments that they see no way out. Bills may have been referred to collection agencies, and you could be dealing with harassment from representatives of those companies.Bankruptcy may be a good option if you owe money to a hospital or doctor's office. This debt is considered unsecured and can often be eliminated by bankruptcy courts. Additionally, collectors will not be calling you asking you to pay the debts. Filing for bankruptcy is often a good way of breaking free from debt that accumulated because of medical issues.Debt is something that can easily creep up on you and end up causing a lot of stress. When you accidentally take on more debt than you can handle and get behind in payments, fees and penalties begin to make the debt even larger. Eventually, it may seem like there is no way out. That is where bankruptcy can offer you a new start when it comes to your financial life.If you are considering filing for bankruptcy, call us at Stockton and Stern LLC. We have the knowledge and experience to help you make the right decisions about your bankruptcy claim and get you the relief you need. You can ease the stress that comes from too much debt, and we want to help.