When Enough is Enough: Debt Relief through Bankruptcy

In some cases, working out repayment plans with your creditors, consolidating debt, or entering into a debt management plan may help alleviate your financial problems. If these options are unworkable, filing for bankruptcy may be the best option. Bankruptcy is considered a last resort for dealing with debt, but it can give you a fresh start.

Stop Calls from Creditors

If you have not been paying your debts, in all likelihood, creditors have contacted you via phone, email, or mail. When a debtor files for bankruptcy, the court issues an automatic stay. An automatic stay prevents creditors from engaging in further collection activities. This means that creditors cannot call, proceed with a lawsuit, or continue with a foreclosure sale.

Bankruptcy Relief

Bankruptcy eliminates certain debt. There are two types of consumer bankruptcies: Chapter 7 and Chapter 13. Chapter 7 results in an elimination of all debt eligible for discharge and it only takes a few months to complete. However, Chapter 7 may result in the debtor losing valuable non-exempt property. Depending on the state, exempt property usually includes furniture, work-related tools, and a certain amount of equity in a home. If the equity in the debtor’s home exceeds the homestead exemption in their state, the trustee may sell the home. The bankruptcy trustee can also sell non-exempt property and distribute the proceeds to unsecured creditors.

A Chapter 13 bankruptcy requires the debtor to repay creditors in a repayment plan. If a debtor has a steady income, this chapter may be appropriate. Unlike in a Chapter 7, the debtor can keep their property, including a home that is in foreclosure if the debtor is able to pay the past due amount in the plan. However, all disposable income—the amount of income left over after making required payments to other creditors—must go toward paying unsecured creditors. After the payment plan is complete, the court will discharge eligible debt.

Consequences of Bankruptcy

Although bankruptcy will give a debtor a new start financially, it also has some consequences. Because the debtor does not have to pay back certain debt, the discharge will remain on a credit report for up to 10 years. This will lower a debtor’s credit score and can affect a debtor’s ability obtain credit.

Getting Legal Help

Deciding whether to file for bankruptcy can be a difficult decision. It can provide relief, while at the same time it can create new stresses. If you are contemplating whether to file for bankruptcy, contact an experienced bankruptcy attorney to learn more.

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