If you’re up to your ears in debt and you just can’t see digging your way out (especially if you are hundreds of thousands to millions of dollars in something like medical debt), bankruptcy may be your only option. Of course, make sure you’ve done everything in your power not to file for bankruptcy, but if bankruptcy debt is going to leave you struggling to catch up forever with nothing to show for it, it may be time to file.
What happens with the process of bankruptcy debt?
If you do decide you need to file for bankruptcy, the first thing you should do is to get a bankruptcy lawyer. A bankruptcy lawyer can help you wend your way through the complex legal process. He or she can also make sure that you have every option available to you open to you; if you try to do this process yourself, you may end up doing things wrong and not be able to file for bankruptcy at all, or be required to file for the wrong type of bankruptcy. (The type of bankruptcy you can actually file for, and the decision as to whether you can at all, is up to the court, not you, and a qualified lawyer knows how to present your financial information to the courts.)
What are the most common types of bankruptcy used when it comes to managing personal debt?
The two most common types of bankruptcy used in personal bankruptcy filings are Chapter 7 or Chapter 13. Chapter 7 means any allowable assets are liquidated and then your debts are paid off to the extent they can be; after this, the remaining debt is simply “forgiven.” There are exceptions to this, however. For example, student loans, tax liens, and child support payments are usually among the debts that cannot be forgiven even in a bankruptcy filing.
Chapter 13 bankruptcy is a process by which you do repay your debts, but they are “restructured” or “reorganized” such that you are put on a payment schedule over what is usually three to five years; you are required to make payments to creditors according to what can “reasonably” be expected, based upon income and other factors.
New rules in bankruptcy filing
Regardless of your situation, you are required to do a certain number of things before you can proceed with bankruptcy, based upon bankruptcy law changes that came into effect in 2005. Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), you must now obtain credit counseling from a company approved by a US trustee within 180 days of filing bankruptcy to determine what options you have.
BAPCPA also makes it much more difficult to file Chapter 7 bankruptcy, which is a liquidation of your assets to pay off debts and can often mean complete forgiveness from debts once all allowable assets have been liquidated (with some exceptions, as previously mentioned). For this, a means test is administered to determine whether or not an individual can reasonably be expected to pay back the debts owed, based upon current income and other factors.
In general, if your income is at or above the median income for others in your state for the six months prior to filing for bankruptcy, you will be required to undergo the means test to determine your eligibility for Chapter 7 bankruptcy; if you are found to be ineligible for Chapter 7 bankruptcy, you can usually file for Chapter 13 bankruptcy.
How a bankruptcy lawyer can help
The bankruptcy process is very difficult at best, especially with the newly stringent rules set up to help avoid bankruptcy abuses (for example, running up huge credit card debts in the six months before bankruptcy, and then discharging the entire debt in the bankruptcy itself). Therefore, you absolutely need a bankruptcy lawyer to help you find your way through the process and come up with the best solution for you with your bankruptcy debt.