Becoming Debt Free: What to Expect in a Bankruptcy Case

In order to become debt free, most individual debtors must take comprehensive and disciplined action to rectify their outstanding debt obligations, while also preventing future debt obligations as well. If bankruptcy is a possible option a debtor is considering, it is probably time to consult with a lawyer, at the very least to determine what debt relief options are available, whether bankruptcy is a viable option, and what to expect during and after bankruptcy.

Eligibility for Bankruptcy

The first bit of information any debtor should consider is whether he or she is a viable candidate for bankruptcy. For starters, most debtors will consider filing under Chapter 13 or Chapter 7. The ability to file either chapter of bankruptcy is a highly regulated process, which considers the extent of debt owed, the ability to earn a given income, and other factors. Quite simply, some debtors may not be able to file for bankruptcy, especially under Chapter 7. It is important to note, however, that an individual debtor who cannot file for bankruptcy can still become debt free, often through debt relief and bankruptcy alternatives. Likewise, many debtors eligible for filing bankruptcy will have already attempted many of these measures before garnering approval to file, either under Chapter 7 or Chapter 13. It is also important to note that most debtors can file under Chapter 13, which is the reorganization and repayment of debts form of bankruptcy, save for certain cases.

Expectations for Chapter 13 Bankruptcy

Under Chapter 13, a debtor is afforded several legal protections via the Bankruptcy Code, which will ideally allow them to renegotiate and repay outstanding debt obligations. In Chapter 13, a debtors income and liabilities are overseen by the courts via a bankruptcy trustee, who alongside a debtor’s lawyer, can renegotiate the terms of certain debts, reorganize a repayment plan, and in short, put a debtor on the path to being debt free within relatively short period of time, at most five (5) years.

As a debtor, the financial obligations still exist under Chapter 13 bankruptcy, and a debtor is still required to consistently make Chapter 13 payments until creditors are satisfied. However, many Chapter 13 cases will involve creditors dropping claims, renegotiating debt amounts, and in some instances, the trustee discharging parts of debts altogether. It is also important for debtors to note that no involuntary liquidation of assets will occur in Chapter 13. However, if a debtor fails to meet their individual payment requirements and other terms of the Chapter 13 plan, his or her case will return to its original state, including loss of bankruptcy protection and other negotiated terms in many cases.

Expectations of Chapter 7 Bankruptcy

The other form of bankruptcy most debtors face, known as Chapter 7 bankruptcy, will require a debtor to liquidate certain non-exempt assets, while also experiencing a discharge of certain debt obligations. Under Chapter 7, not all debts will be discharged and not all assets are required to be liquidated. The decision on what is exempt from liquidation and what debts can be discharged is a case-specific consideration, made only light of the assets and debts held by a debtor, as well as the applicable state exemptions laws. In short, in order to gain an accurate perspective of expectations for Chapter 7, a debtor must consult with a lawyer in his or her state.

Getting Legal Help with Becoming Debt Free

In reality, becoming debt free is a prolonged process for most debtors, which will involve legal action, negotiations, and most importantly, lifestyle changes on behalf of the debtor. For most persons, the best source of information, guidance, and representation during any debt relief attempt will come from a bankruptcy attorney. The laws surrounding bankruptcy and debt relief in general are complex and highly case-specific. Likewise, the options and alternative afforded to an individual debtor are also highly case-specific. Consulting with a debt relief lawyer or bankruptcy attorney is truly the only definitive method of obtaining answers and garnering accurate expectations of your individual debt or bankruptcy case.