facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause

Some Information To Know About Bankruptcy

Some Information To Know About Bankruptcy

By Les Stephen

Information to know about bankruptcy, but possibly enough so that if you are considering filing for bankruptcy protection it may answer a few questions.  Also, you may want to consider to contact a bankruptcy attorney because this is a big decision and there are many steps to the process that must be completed and completed correctly.  By the way, they usually cost $1500 - $5000 depending on the complexity of your case.  A few major reasons people find themselves in this situation are medical debt, job loss and poor financial choices.   One thing that I might mention is that bankruptcy should only be considered as a last resort.  If you find yourself in financial difficulty the answer may be as simple as contacting your creditors and working out a payment or debt settlement plan.  Having said that lets jump in. 

Although there are six different forms of bankruptcy, we are going to discuss the two most common which are Chapter 7 and Chapter 13.   A Chapter 7 bankruptcy is a “liquidation bankruptcy” where non-exempt property is sold and used to pay off your debt. It is designed for people who don’t have the income to pay off their debts.  The government has a “Means Test” that determines if you qualify according to your income and disposable income.  Most states have a list of exempt items such as your home, car, bank accounts and retirement accounts that are within reason.  That Lamborghini in your garage probably wouldn’t make the list and must be sold.  If you have assets that you want to protect like a boat or RV, Chapter 7 may not be your best option.  Having said that, in almost every case there are no assets sold in this process.  Another thing to realize is that tax debt, child support and student loans are among items that will not be discharged in a bankruptcy.  In the right situation where someone has a lot of debt with insufficient income and no substantial assets this may be a way to get rid of the debt and get a fresh start.  

If you cannot qualify or chapter 7 does not make sense, filing a chapter 13 may be an option.  Chapter 13 is a “reorganization bankruptcy” where you are not forced to sell your property and the court will mandate a 3–5-year payment plan for your debts.  At the end of this timeframe, debt that remains may be forgiven.  As in a Chapter 7, in a Chapter 13, tax debt, child support and student loans are among items that will not be discharged.  There are certain restrictions so once again, working with an attorney that specializes in bankruptcies may be the direction you want to go if your financial situation allows.  

In both, a Chapter 7 and 13, as soon as the bankruptcy proceeding is filed initially, the court will issue an automatic stay.  This order requires creditors to stop trying to collect a debt.  This order includes a requirement that a mortgage holder cease foreclosure activities.  

One major thing to consider is that a bankruptcy will have a dramatic effect on your credit and will stay on your credit report for 7-10 years.  This is a consideration if, during the following 7-10 years, you want to buy a home, a car or even look for a new job.  (If you are in a situation where you consider filing for bankruptcy, more than likely your credit is probably already in a very bad place.)  In the right circumstances and if following all the rules, bankruptcy protection can be a great option.

If you are looking for a financial advisor team focused on your unique financial situation, communicates openly, and that puts you and your goals at the center of the relationship, call us at (480) 507-2425 or contact us online. We’d love to meet you. 

The content in this article was prepared by the article’s author. Cetera Advisor Networks, LLC does not endorse its content, and the views expressed may not necessarily reflect those held by Cetera Advisor Networks, LLC.