Many people in today’s economy struggle to keep up with monthly expenses, and many of us do not have a sufficient savings account to handle emergencies that undoubtedly come up. This can lead to using a credit card as back up for those emergencies or even months where money feels a little tight. Soon, this debt can snowball to the point that you’re unable to keep up with minimum payments and you’re looking at years and years of mounting debt. If this sounds familiar, you may want to do some research about bankruptcy. When you work with an experienced bankruptcy attorney, you can be confident in each decision that you make along the way.
Why Chapter 13?
For most consumers, there are two chapters of bankruptcy that are most helpful, and we can decide which one is best for you by looking at your debts, income, and assets and conducting the means test. A Chapter 7 allows you to discharge your unsecured debt, but could result in some of your property being sold, and a Chapter 13 reconfigures your debts and puts you on a reduced payment plan that allows you to keep your property and assets. While a Chapter 13 may not sound like it has much benefit, the payments are structured so that secured debts and priority debts such as student loans and child support are always paid. Your living expenses are examined next, with any remaining income going toward unsecured debts such as credit cards and medical bills. In some cases, these debts are not paid at all, and at the end of the 3-5 year repayment plan, they are discharged.
Filing any type of bankruptcy will lower your credit score, but a Chapter 7 stays on your credit for 10 years, while a Chapter 13 only appears for 7 years. With either chapter, there are things you can do to rebuild your credit starting right after you file.
If you file a Chapter 13, you cannot file another Chapter 13 for at least 2 years or a Chapter 7 for at least 6 years. One thing to keep in mind is that if you file a Chapter 13 and are then faced with more financial challenges right away, you can convert to a Chapter 7. This is something that you’ll really need to think about before pursuing, because it could mean losing your property. However, if your situation is urgent, just being free of the debt could be worth losing property that you could replace later, once things turn around.
Neither chapter will discharge child support, student loans, or alimony, but these payments will be taken into consideration when designing your repayment plan, keeping your payments manageable.
Get Professional Advice
I always advise my clients to explore and consider every alternative to bankruptcy before moving forward. Filing can have serious consequences for your credit and other aspects of life, so it’s important to seek the guidance and wisdom of a professional bankruptcy attorney. I can help you make the best possible decision that will give you a new financial start while protecting as much of your property as possible.