By: Crystal H. Thonrton-Illar, Esq.
The thought of declaring bankruptcy can be a confusing and scary process. Should you continue to use your credit cards and try to make the monthly minimum payments or should you just file for bankruptcy?
When faced with this decision, consider the following:
• Do you use credit cards to pay for necessities?
• Do you make only the minimum payments on your credit cards?
• Are you over or near the credit limit on your credit cards?
• Are you receiving calls from bill collectors?
• Do you feel overwhelmed by your debts?
• Are you considering taking money from a retirement account to pay debts?
• Have you been sued by a creditor?
• Are you considering debt consolidation?
If you answered yes to one or more of these questions, bankruptcy may be an option. You should assess your financial situation by reviewing all of your debts, assets, and income. Is there a reasonable possibility you could develop a plan to pay your debts by selling unnecessary assets and using your regular monthly income within the next few years? If the answer to that question is yes, you should develop a plan and attempt to pay your debts. Bankruptcy should always be the last resort. If the answer to that question is no, bankruptcy may be the right option for you.
Will Bankruptcy Help?
Even if you have determined that you cannot reasonably pay your debts, a bankruptcy may not help your financial situation. What type of debts do you have? If most of your debts are from student loans, child support, or income taxes, bankruptcy may not be the answer as these debts are not generally discharged or forgiven in bankruptcy. However, you may still want to consult with an experienced bankruptcy attorney in your state as there are exceptions to every rule.
Bankruptcy may be an option if your debts are mostly credit card debts, unsecured loans, and medical bills. In many cases, bankruptcy can completely eliminate all of those debts while you retain all of your assets. Bankruptcy can also help if you are facing a mortgage foreclosure or other law suit as filing a bankruptcy will generally stop those proceedings.
Should I File a Chapter 7 or a Chapter 13 Bankruptcy?
Individuals or consumers typically file chapter 7 or chapter 13 bankruptcies. The person filing the bankruptcy is known as the debtor. Chapter 7 bankruptcies are the most common, and typically an individual debtor will receive a discharge of all unsecured debts meaning those creditors can no longer sue the debtor on those debts. To qualify for a chapter 7 bankruptcy, the debtor’s income must fall below a certain threshold, which differs depending on where the debtor resides and the size of the debtor’s family.
A chapter 13 bankruptcy is generally for those individuals whose income does not fall below that threshold amount or for people who have fallen behind on their mortgage payments. A chapter 13 bankruptcy will allow a debtor to catch up on missed mortgage payments over a period of three to five years. Some debtors may also be able to reduce the balance of their vehicle loans in a chapter 13 bankruptcy and/or strip second and third liens from their houses depending on their circumstances.
Declaring bankruptcy is a huge financial step that should not be taken lightly. Anyone considering filing bankruptcy should consult with an experienced attorney in their state.
How Leech Tishman Can Help
If you think bankruptcy might be an option for you, Leech Tishman can help. Call us for a free consultation. We can discuss your situation and help you decide if bankruptcy is the right choice for you.