Bankruptcy might not be your preferred solution, but it can be the saving grace you need to have a fresh start. Here’s why?
Bankruptcy offers you the ability to discharge your debt. This means that your debtor will no longer be able to take action against you if you file for bankruptcy. Think about it, no more debt collectors on your doorstep or people trying to seize your household property for collateral.
And you can do this in two ways:
- You can opt for chapter 7 bankruptcy
- You can opt for chapter 13 bankruptcy
Chapter 7 Bankruptcy
With chapter 7 bankruptcy, a trustee liquidates your assets and uses any proceeds to pay your creditors a portion of what you owe. However, some of your assets, like primary automobile, clothing, social security benefits, pension, and immediate home equity, will not be liquidated. Your debts are often discharged four months after you file for chapter 7 bankruptcy.
Chapter 13 Bankruptcy
With chapter 13 bankruptcy, you can keep all your assets as long as you agree to pay a portion of your debt over a period of time. Usually, this is between three and five years. Once the period is over and you’ve kept your promise, all your remaining debts are discharged.
Debts Not Cleared By Bankruptcy
However, certain debts cannot be discharged by either chapter 7 or chapter 13 bankruptcy. According to the U.S. Bankruptcy Code, there is a list of 19 categories of debts that cannot be cleared even if you do file for bankruptcy. Some of the common debts include:
- Child support and alimony
- Debt by fraud
- The court imposed fines and penalties; this includes parking tickets and traffic fines
- Unpaid taxes such as tax liens.
- Debts incurred through malicious or willful injury to another property or person
- Debts incurred by the debtor’s operation of a motor vehicle while intoxicated or impaired by alcohol or other substances which resulted in personal injury or death
- Debts not listed in the bankruptcy file
- Student loans, especially if you have been out of school for less than seven years
- Gambling debts, in some situations
A creditor can challenge your discharge during your bankruptcy so that it can become non-dischargeable. If this happens, the court will hold a hearing allowing you and the creditor to present your arguments.
The court will discharge the debt if the creditor fails to object or if the court disagrees with them. Some of these debts that the creditor can challenge include:
- Credit card purchases for luxury goods worth more than $650 in aggregate. These purchases should have happened within 90 days of the date of the bankruptcy filing. They should additionally belong to one creditor
- Debts obtained through fraud or false pretenses
- Debts obtained through malicious injury or willful injury to another person of property
In other cases, the court will also deny you a chapter 7 discharge if you don’t comply with the bankruptcy procedure or rules. This includes cases where you commit perjury, destroy records, or defraud creditors. The court can also deny you discharge if you frequently file for bankruptcy.
Conclusion
Remember that bankruptcy comes with consequences like remaining on your credit report for many years. This can make it challenging to obtain future loans, for things like a mortgage. Bankruptcy can be a confusing issue, but when you contact us today we will go over the details as well as the rights that bankruptcy protection provides.