Declaring bankruptcy can seem like a complicated procedure with many legal and financial risks. But for some, it’s the only way to get out from underneath a mountain of debt and other financial burdens they may never be able to pay off. However, declaring bankruptcy will have long-term effects on your credit score and your ability to pursue loans in the future, so it’s important to consult with the best bankruptcy lawyers to understand the ins and outs before you make that decision. This post will explore a few topics surrounding this legal process and, hopefully, give you an overview of what to expect.
There Are Different Types Of Bankruptcy, Including Chapter 7 And Chapter 13
When filing for bankruptcy, it is essential to understand the different types of bankruptcy and what they involve. The two most common forms are chapter 7 and chapter 13. This Tuscaloosa chapter 7 bankruptcy attorney states that this type is also referred to as liquidation bankruptcy, which gives you an idea of what to expect. In order to qualify for chapter 7, your income should be below the median income in your state. With this type of bankruptcy, the majority of your debts will be discharged, i.e., you will no longer be responsible for repaying them. However, some types of debt cannot be eliminated with chapter 7, such as student loans and child support (which is covered later in the post).
Chapter 13 bankruptcy is also known as “debt adjustment” or a “wage earner plan” because it requires you to make payments on a reorganization plan based on your income level over three to five years. Your payments should go towards paying off your debtors, and the court will discharge any remaining balance after the term is complete. In addition, filing for chapter 13 can help you save your home from foreclosure or stop creditors from taking your poetry away from you if you qualify for this type of protection under the law.
It Can Have Long-Term Effects On Your Credit Score And Financial Future
Most folks tend to believe that bankruptcy, whatever the flavor, will be a panacea for their debt woes and enable them to start afresh. However, this couldn’t be further from the truth, and you need to think very carefully before going down this path. Generally, filing for bankruptcy will stay on your credit report for seven to ten years and can seriously damage your ability to get loans or lines of credit during that time (and even if you do, the payments may be prohibitive). Creditors may also take a hesitant approach toward loaning you money due to the uncertainty associated with bankruptcy filings. They may require higher interest rates and demand larger down payments, so they can minimize the risk of you being unable to pay them back in full. Your access to short-term financings, such as payday, car title, or home equity loans, may also be restricted due to bankruptcy proceedings. It’s also important to consider potential job implications since many employers check credit history when hiring applicants. Being able to explain why you had filed for bankruptcy could help ease any concerns about your candidacy for employment. However, it could still put you at a disadvantage against other candidates who don’t have a negative mark on their records.
Some Debts May Not Be Discharged In Bankruptcy
As briefly mentioned, not all debtors can be wiped clean, and some will stick around no matter what you do. In fact, some of these debt types can even follow you after your bankruptcy case is over. It’s essential to know what kind of debt will survive insolvency before flying to ensure you don’t end up stuck with any lingering obligations after the discharge of your debts. The most common non-dischargeable debts include:
- Domestic support obligations (alimony, child support, etc.)
- Student loan debt
- Court-ordered fines
- Criminal restitution orders
- MOrtagaes on real property that is pledged as security
- Some taxes (if you owe back taxes to the IRS or state tax agency, you better believe they will still want to collect)
- Criminal fines imposed by a government agency such as the SEC or FTC
Bankruptcy Laws Vary By State, So Find An Attorney Familiar With Them
State bankruptcy laws slightly vary from one state to another (even though it’s a federal competency, some states have their own additions). Unfortunately, it is easy for someone filing for bankruptcy to overlook or misunderstand these laws accidentally. That’s why it’s so crucial to find an attorney who specializes in this field of law and knows the law in your particular state. Having a knowledgeable professional by your side during this stressful situation can help ensure that everything goes as smoothly as possible and give you peace of mind knowing that all legal requirements are met.
It is essential to consider all options available and ensure that you are making the best decision for your individual situation if you find yourself in the unenviable position of requiring a bankruptcy filing. Nevertheless, while there may be challenges and pitfalls, it can provide relief from overwhelming debts while allowing an individual to retain certain assets.
