When You File Bankruptcy
You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):
Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.
Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
If you have already filed bankruptcy under Chapter 7, you may be able to change your case to another chapter.
Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.
What Is a Bankruptcy Discharge and How Does It Operate?
One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–
most taxes;
child support;
alimony;
most student loans;
court fines and criminal restitution; and
personal injury caused by driving drunk or under the influence of drugs.
The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.
It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.
You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.
What Is a Reaffirmation Agreement?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements –
must be voluntary;
must not place too heavy a burden on you or your family;
must be in your best interest; and
can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.
If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.
If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.
Summary of Potential Savings:
While bankruptcy is not a “quick fix” for everyone and has long-term financial consequences, it can provide substantial savings and relief from overwhelming debt, allowing individuals and businesses to regain financial stability and a fresh start.
What You Could Stop
The amount of money saved through bankruptcy can vary greatly depending on the type of bankruptcy filed, the individual’s or business’s financial situation, and the specific debts involved. However, here are some general estimates and insights into how much money can be saved by filing for bankruptcy:
Chapter 7 Bankruptcy (Liquidation):
Debt Discharge: In a Chapter 7 bankruptcy, most unsecured debts (such as credit card debt, medical bills, and personal loans) are typically discharged, meaning they are completely forgiven. This can lead to savings of tens of thousands of dollars or more, depending on the size of the debt.
Example: If an individual has $50,000 in credit card debt and medical bills, a Chapter 7 bankruptcy could eliminate that entire amount.
No Repayment Required: Unlike other types of bankruptcy, there is no repayment plan under Chapter 7. Debtors are not required to pay back the majority of their debts, which saves money and reduces the overall financial burden.
Chapter 13 Bankruptcy (Reorganization):
Debt Reduction: In Chapter 13 bankruptcy, the debtor repays a portion of their debt over 3-5 years, based on what they can afford. The remainder of the debt that is not paid off during the repayment period may be discharged at the end of the plan.
Example: If a person has $40,000 in debt and a repayment plan is arranged to pay 30% of the total debt, they would pay back $12,000 and have the remaining $28,000 discharged, saving $28,000.
Lower Interest Rates and Fees: Often, Chapter 13 allows for the reduction of interest rates or fees on certain types of debt (e.g., credit cards or loans), leading to significant savings over time.
Stop Foreclosure:
For individuals facing foreclosure, filing for bankruptcy can delay or stop the foreclosure process temporarily, giving the debtor more time to find a solution or catch up on missed payments. In some cases, bankruptcy allows for the modification of a mortgage or a reduction in the amount owed, saving substantial amounts on home loans.
Example: If a homeowner owes $200,000 on a mortgage and has fallen behind, bankruptcy may allow them to repay only a portion of their arrears or renegotiate terms to make the payments more affordable.
End Wage Garnishments:
Bankruptcy can halt wage garnishments and prevent further collections from creditors. If an individual has been garnished 25% of their wages due to a debt, bankruptcy can stop these deductions, effectively increasing their take-home pay and providing additional financial relief.
Example: If an individual’s wage garnishment was $500 per month, bankruptcy could free up that amount, saving $6,000 a year.
Eliminate Credit Card Debt & Medical Bills:
The average American consumer debt from credit cards was over $5,000 in 2023. Bankruptcy can wipe out this debt, saving significant amounts on high interest rates that often accompany credit card balances.
Example: A person owing $10,000 on credit cards with a 20% interest rate could save thousands of dollars in interest payments over the course of several years by filing for Chapter 7 bankruptcy.
We are the BETTER solution. We are here to help make this a stress-free experience.
– Ceron Davis | Bankruptcy Attorney