Financial stress is a growing problem for many households. Some people have been deeply affected by pandemic-related losses or reductions of income while others are facing a growing struggle with mountains of debt due to student loans, medical bills, or other major expenses. As the pressure mounts from debt collectors calling or wage garnishments limiting your available funds, it may seem like bankruptcy is your only remaining option.
If you are currently considering bankruptcy, make sure you discuss the following with a bankruptcy attorney before making your decision final:
Understanding Bankruptable Debt
Before moving ahead with a decision to file bankruptcy, it is important to have a good understanding of which of your debts are actually bankruptable and how these debts are handled under the two most common filing types, Chapter 7 and Chapter 13. The good news is that most consumer debt, such as credit card and medical debts are considered to be bankruptable. Unfortunately, many types of tax debt, most student loans, and any debt related to child support or alimony are usually not considered to be bankruptable debts.
Understanding Each Filing Type
Chapter 7 bankruptcy filings can wipe away most bankruptable debts and are often utilized by those who do not have enough regular income to pay off their debts. Filers must provide detailed financial information and may be required to liquidate certain assets to satisfy some of the debt during the legal process. For example, filers who own property, valuable jewelry, vehicles, or other assets may be required to liquidate them and use the resulting funds to satisfy some of their debts as part of the filing process.
Chapter 13 bankruptcy is the option most used by filers who have sources of regular income but who feel buried under mountains of debt. This type of bankruptcy filing creates an installment type of repayment plan designed to pay off the debt over a period of years. Chapter 13 filers may be required to pay all or a portion of their existing debts off. An important benefit of filing Chapter 13 bankruptcy is that it can stop pending foreclosures and allow filers to catch up on their mortgage payments.
Potential Future Impact
If you are considering bankruptcy to relieve your financial stress, you'll also need to understand the potentially serious impact it can have on other areas of your life, including access to future credit and employment opportunities. Take time to have a detailed discussion with a bankruptcy attorney to make sure you understand the legalities of the process and the impacts it could have on your current and future financial situation to determine whether it is right for you.