Debt Relief through Bankruptcy: Information for Struggling Debtors

As a struggling debtor, the most important aspect of any debt relief strategy is knowing what all the available options are. In reality, this information, which is highly specific to the individual nature of each debtor, is only obtainable through an actively practicing bankruptcy or debt relief lawyer. However, in order to have a better understanding and a few talking points going into any meeting with a lawyer, the following article outlines some of the debt relief options available through bankruptcy.

Bankruptcy Varies by Chapter and by Debtor

In most personal bankruptcy cases, a debtor will file either under Chapter 13 or under Chapter 7. These different chapters of bankruptcy widely vary. Briefly, Chapter 7 allows a debtor to discharge certain debts, while also forcing the debtor to liquidate (sell) non-exempt assets. Chapter 13 bankruptcy allows a debtor to reorganize and restructure debts, under the supervision of the bankruptcy courts, to repay outstanding debts eventually. Chapter 13 does not involve any form of involuntary sale of assets.

Debt Relief Applicable to Filing Bankruptcy, Regardless of Chapter

From the onset of filing for bankruptcy, regardless of which Chapter or if the courts have approved the filing, a debtor can obtain several forms of protection under bankruptcy laws. The most notable is known as an automatic stay, which prevents creditor collection attempts from continuing until the filing is sorted out by the courts. Normally, the term creditor collection attempts brings to mind calls, letters, and other attempts to collect, but in many cases of bankruptcy, the automatic stay can at least temporarily stop repossessions, foreclosures, wage garnishments, and other liens from being realized.

Debt Relief During and After Bankruptcy: Chapter 13

During a Chapter 13 filing, a debtor will go through a relatively complex process over the course of three (3) to five (5) years, which ultimately will involve the following results:

A debtor will initially evaluate and reorganize debts under the supervision of a bankruptcy trustee appointed by the courts. This process, which will require legal representation, may involve renegotiating the terms and amount of debt owed and outlining a mandatory repayment plan the debtor must follow.

The debtor’s repayment plan will be calculated based on all outstanding debts (less those renegotiated or not pursued by creditors) and the income of the debtor (based on current income and adjustable in light of hardship/adjustment of income).

A debtor must adhere to the repayment plan, as well as forgo accruing new debt obligations, under the supervision of the bankruptcy trustee. Any adjustments in lifestyle, hardship, and any other change to the repayment plan or the debtor’s expenses must be approved by the trustee.

Should a debtor complete the Chapter 13 filing, he or she will likely proceed debt free, or in certain cases, with limited debt obligations, such as prolonged priority debts (such as child support, alimony, and taxes) and secured debt obligations (most notably mortgage payments).

Debt Relief During and After Bankruptcy: Chapter 7

During a Chapter 7 filing, a debtor goes through a process of liquidating assets and discharging debt obligations. The following will occur during and after a Chapter 7 filing:

Debtors must liquidate all assets not exempted under Federal bankruptcy exemptions or the applicable state exemptions lists.

All non-exempt property becomes assets held by a bankruptcy trustee, which are ultimately sold to satisfy creditors.

Debtors incur a discharge of unsecured debts and other debts, in certain cases. It is noteworthy that many debts are not dischargeable under Chapter 7, including student loans, child support obligations, and the majority of tax debts. Furthermore, certain secured debts are not dischargeable under Chapter 7, and if attached to a given piece of property, will require repayment of the debt or repossession of the property (typically a personal vehicle loan or mortgage loan and home).

Getting Legal Help with Debt Relief and Bankruptcy Information

As a debtor, the most important step in retaining financial independence is through obtaining all the requisite information required to know more about one’s debt relief and bankruptcy options. Many government entities offer this type of information, but in practice, only a lawyer with experience and an understanding relating to your personal debt situation can accurately inform debtors of all their viable options.

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