Out of Work and Underwater: What Can Bankruptcy Law Do?

If you become unemployed or lose your method of income, or if your debt begins to outweigh the flow of funds coming into your household, the task of providing for your family and covering financial responsibilities can become an extremely daunting task. Your bills and debts may fall into a default state, and creditors may begin to seek payment by means of collection or garnishment. At this point, it is very important you familiarize yourself with both your rights regarding a bankruptcy filing and the steps of procedure in the bankruptcy process.

Understanding Bankruptcy

First, you should know that filing for bankruptcy should always be exercised carefully and as a last resort. You should make every attempt to settle any debts you may have by negotiating a feasible payment schedule with your creditor, or by any other means your creditor may offer. Once you file for bankruptcy, you may not do so again for a period of time no less than 6 to 8 years, depending on the bankruptcy law in your state.

Benefits of Filing For Bankruptcy

Filing for bankruptcy is most commonly exercised as a means of negotiating unsecured debt or eliminating such debt . There are a few different types of bankruptcy filings, so it’s very important you familiarize yourself with the different chapters of bankruptcy filing and decide which chapter works best for you, depending on your career, amount of income, and possession of assets. Of all of the different forms of bankruptcy available for filing, in most cases only one will benefit you in the manner required.

Chapter 7 Bankruptcy

Filing for bankruptcy is often done to relieve a person of any unsecured debt to various creditors while allowing the debtor to remain in possession of any assets exempt from liquidation (such as some home equity). Typically, with Chapter 7, you do have to turn over all assets that aren't exempt and those assets are sold in a sheriff's sale. The proceeds are used to pay creditors, but any unpaid balance is forgiven- hence chapter 7 bankruptcy is also referred to as “Liquidation Bankruptcy.” Only certain people who make an income below the median in their state and/or who can't pay debts out of their disposable income and still have money left over, can qualify.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, or “Reorganization Bankruptcy”, has become more common as a result of changes to bankruptcy law that limit Chapter 7 filing. This form of bankruptcy requires the filer to prove that their monthly income is less than sufficient to cover their monthly expenses, while they must also have proof of an income that is greater than zero. Chapter 13 requires the debtor to create a monthly payment plan on the debt that does not interfere with is monthly financial needs for maintaining family stability.

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