The first things Tallahassee-area residents considering bankruptcy should know is that they are not alone and there is no reason to feel shame. More than one million Americans file for bankruptcy every year, and that majority of bankruptcies are due to financial hardship rather than reckless spending. Outstanding medical expenses have long been a leading cause of the nation’s personal bankruptcies. Other causes include job loss, unaffordable mortgages/foreclosure, and divorce. And, yes, living beyond one’s needs or accumulating too much debt also leads some people into bankruptcy.
Whatever the cause of your bankruptcy consideration, the lawyers at Akbar Thomas Law Firm, PA, strive to provide a careful assessment of whether bankruptcy is the best course of action given your circumstances. Our bankruptcy lawyers do not have any in making any judgements about your situation. Our goal is to provide you with compassionate guidance to help you make the best decisions for your financial future. As such, we are going to use this blog to provide you with basic bankruptcy information and the pros and cons of filing for bankruptcy.
Understanding Bankruptcy Basics
Bankruptcy has evolved as a component of federal law to provide individuals and companies with relief from outstanding financial burdens. When you petition the federal bankruptcy court, it initially grants an automatic stay of debt collection, which prevents creditors from collecting on debts owed, foreclosing on property, repossessing vehicles, or garnishing wages. A bankruptcy judge, and related court proceedings, will then determine the best means for settling your debts under bankruptcy law. Creditors are legally obligated to accept whatever payment—including none—the court ultimately rules in the case.
Personal bankruptcy is typically filed under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. Also known as “liquidation” bankruptcy, under Chapter 7 the court essentially sells all of your non-exempt assets to pay off as much of your debt load possible. Exempt assets would include your home, primary vehicle, and retirement accounts (IRA). Non-exempt assets would include non-residence real estate, secondary vehicles, other investments, artwork, and jewelry. A Chapter 7 filing requires meeting strict eligibility requirements relating to income levels and other factors.
Those ineligible for Chapter 7 can file under Chapter 13. A wage earner’s plan is another name for this. It is a design to help people repay all or part of their debts by easing payment plan terms. As with Chapter 7, Chapter 13 automatically stops most debt collection actions and prevents home foreclosure and vehicle repossession. Chapter 13 judgements typically result in rulings that require monthly repayment plans for most debts. These plans allow for a discharge of remaining amounts owed after successful repayment for a term of three to five years. Note that failing to abide by Chapter 13 payment plan terms can lead to home foreclosure or vehicle repossession.
The Pros of Filing for Bankruptcy
Treat bankruptcy as a last-gasp effort to maintain the life you’ve built for yourself and keep important property—home and vehicle—that supports your lifestyle. There are distinct pros for filing for Bankruptcy depending upon whether you file under Chapter 7 or 13. The first benefit is that creditors are barred from pursing payment or taking other legal actions against you while the court determines your case. This provides breathing room that can help you determine the best course of action for rebuilding your financial life. Other bankruptcy pros include:
- Discharge of some or all debts.
- Consolidation of your debt load and creation of more manageable payment plans.
- Avoiding future legal action against you for unpaid debts.
- Long- (Chapter 7) or shorter-term (Chapter 13) protection from home foreclosure and vehicle repossession.
- Protection of any retirement-related investments and other assets depending upon the filing.
- The ability to begin restoring your credit once finalizing the bankruptcy.
The Cons of Filing for Bankruptcy
As a last-resort effort to maintain your financial life, filing for bankruptcy does come with repercussions. Of course, the goal of your bankruptcy is to negate the overwhelming problems that already exist with your current financial situation. Your bankruptcy lawyer can help you balance the pros of filing with the following potential cons:
- You will devastate your credit rating (though it was probably already suffering).
- There may still be responsibility for some debts, such as student loans, mortgages, alimony, and potentially other secured debts.
- You will likely lose some assets owned under Chapter 7, and could lose some under Chapter 13 if you fail to follow court orders.
- It could impact your employment, if your position requires a security clearance or involves handling finances.
- Your bankruptcy stays on your credit report for up to 10 years, which can cause a variety of financial-related problems.