If you are experiencing financial difficulties and are considering declaring bankruptcy, you must understand what bankruptcy will and will not do for you. For debtors, bankruptcy could be a potent tool. It enables you to manage your debts and restart your life. However, depending on your debt type and the expected outcome, it can or cannot work in your situation.
You can accomplish a lot by declaring bankruptcy to help you deal with some of your financial issues. For example, you can stop your creditors' wage garnishments or other efforts to recover their money. However, it cannot eliminate all debts, like alimony and child support. Speak with an experienced bankruptcy attorney to learn more about what you can and cannot achieve through bankruptcy. Your attorney will help you make an informed decision.
Understanding What Bankruptcy Can Do For You
Declaring bankruptcy could be a good idea if you are drowning in debt. You could find yourself owing more than you can afford, with your creditors regularly demanding payments. In that case, it is time to seek the assistance of a bankruptcy attorney in managing your debts and starting over. Bankruptcy is an excellent solution for those drowning in debt. It can assist you in repaying some of your most stressful debts and eliminating some of your liabilities. However, before making any final decisions, you should understand the bankruptcy process, what you can achieve from it, and some of the negative consequences. That would prepare your mind as you start the process.
Here are some of the benefits of declaring bankruptcy:
Filing for Bankruptcy Can Stop Creditor Harassment
When you owe a large sum of money to an individual or business and need to catch up on payments, your creditor will make every effort to collect from you. Some creditors send daily reminders via text, email, or phone call. It becomes overwhelming when they send you payment reminders regularly and you cannot make payments. If you owe money to more than one creditor and they all send you daily reminders and harassing messages or phone calls, it can cause stress and even depression. You are constantly afraid of answering the phone or reading your messages for fear of another creditor attempting to collect payments from you.
If you are struggling financially and cannot make payments on time, credit harassment is unavoidable. Creditors use harassment to force debtors to adhere to repayment schedules. If you cannot make payments to your creditors and wish to stop their harassment, filing for bankruptcy could be beneficial.
Filing for bankruptcy prevents creditors from attempting to collect money from you. The Federal Rules of Bankruptcy Law will provide an automatic stay against your creditors immediately after you file a petition in court. The order will prohibit them from calling, texting, emailing, or physically contacting you about your debt. Any creditor who violates that order faces sanctions from the Bankruptcy Judge.
Filing for Bankruptcy can Temporarily Stop Repossession, Eviction, and Foreclosure
Most people's greatest fear when facing financial difficulties is losing valuable assets that have cost them a lot of money and time to acquire. You could be emotionally attached to some of your most valuable assets and losing them can be very difficult. Unfortunately, declaring bankruptcy does not protect all of your valuable assets. You could lose some of them to liquidation if they are not exempt from liquidation. However, bankruptcy can temporarily halt specific processes that could result in the loss of valuable assets, like repossession, foreclosure, and eviction.
The judge's automatic stay order is sufficient to halt these processes and allow you to keep your most valuable assets for a little longer. For example, filing for bankruptcy will temporarily suspend the legal process if you have a pending eviction case in court. However, if the landlord has already received a court eviction judgment, filing for bankruptcy will not prevent them from evicting you.
An automatic stay order will also temporarily halt repossessions and foreclosures. However, if you file for bankruptcy under Chapter 7, you will lose some of these assets if they are not exempt. You will be required to turn over everything you own that is non-exempt to your bankruptcy trustee, who can sell it to repay your debts. If you do not bring a home or vehicle’s account current before completing the bankruptcy, you could lose it once the judge lifts the automatic stay order.
However, filing for Chapter 13 bankruptcy can prevent foreclosure and repossession. You can save your valuable assets if you earn enough money and keep up with payments. Chapter 13 bankruptcy allows you to create a new repayment plan with the assistance of your bankruptcy trustee. Your trustee will assist you in developing a repayment plan to help you clear your debts and keep your valuable assets. If you have a mortgage and a car loan, you can include them in your repayment plan to eventually keep your car and home. The repayment period can range from three to five years.
Filing for Bankruptcy Could Wipe Out Your General Unsecured Debts
The court will discharge some of your debts when you file for bankruptcy. Debt discharge is a legal provision that relieves you of personal liability for certain debts listed as dischargeable debts. It also prevents creditors from pursuing legal action against you or your assets to collect their debt.
The discharge also prevents you from communicating with your creditors about the discharged debt, including phone calls, emails, and personal contact. You will be completely free of those debts once the court discharges them.
As a result, if you have a lot of debt, you can significantly benefit from discharging debt. If declaring bankruptcy discharges some of your obligations, you can quickly devise a repayment plan for the remainder of your debts. This will assist you in managing your debts and finances and give you a fresh financial start.
Nonpriority unsecured debts like credit card debts, overdue utility bills, gym contracts, medical bills, and personal loans are some of the debts you can discharge by filing for bankruptcy. A debt is considered unsecured if you did not promise to return the purchased item or did not provide collateral when obtaining the debt.
However, if your debt is secured, the liability is discharged but their lien remains---ultimately meaning you need to pay it after bankruptcy. Large appliances, computers, furniture, jewelry, and electronics are secured debts you could have acquired with your credit card. After filing for bankruptcy, you must return those items to the seller or negotiate a lower payoff.
Bankruptcy Could Wipe Out Some Secured Debts
If you bought some property and cannot keep up with the payments, you can quickly clear some of the debts by returning the purchased items after filing for bankruptcy. If you bought items like computers, jewelry, and electronics and cannot make payments on them, you can return them to the seller after filing for bankruptcy. This will discharge your obligation to the seller, leaving you with fewer debts to manage.
You Can Save Some of Your Assets Through Bankruptcy Exemption
If you file for bankruptcy under Chapter 7, you will not technically lose everything you own. For example, you will keep part of your home equity, car equity, home appliances, and trade tools. Depending on the values, you might be able to keep the entire equity. Some of the assets exempt from bankruptcy are listed in bankruptcy-exempt laws. Your trustee will liquidate only non-exempt property to raise funds to repay your debts. What you save through exemption laws is yours to keep.
What Bankruptcy Will Not Do
It is important to note that bankruptcy will only solve some of your financial problems. Consider what it will not do for you:
Declaring Bankruptcy Cannot Protect Against Repossession or Foreclosure of Assets That You Cannot Afford
An automatic stay order issued by the court can temporarily stop foreclosure or repossession of assets. On the other hand, these creditors will continue the process once the judge lifts the injunction. As a result, if you file for bankruptcy, you could lose valuable assets you cannot pay for. Filing the proper chapter of bankruptcy is crucial.
A bankruptcy discharge only eliminates unsecured debts and does not eliminate liens. If you acquired a home, vehicle, or real estate property and used it as collateral, your creditor has the right to repossess the asset if you fail to make timely payments. Your creditor will seize the property, auction it off, and use the earnings to repay your outstanding debt. A lien remains on the acquired property until all payments are made against it.
Thus, if you owe a secured debt and your creditor has a lien on the asset, bankruptcy can relieve you of the obligation to repay the remaining debt but does not remove the lien. The creditor retains the right to recover the asset used as collateral to obtain credit. For example, when you file for bankruptcy under Chapter 7, you could be able to discharge your mortgage. However, if you do not pay off your mortgage, your mortgage lender has the right to repossess your home once the judge lifts the automatic stay order.
Filing for Bankruptcy Does Not Eliminate Spousal and Child Support Obligations
Remember that you can discharge some of your debts through bankruptcy, but not all. Child and spousal support are two types of debts that a bankruptcy cannot discharge. If you have a court order requiring you to pay spousal support and/or child support, filing for bankruptcy cannot interfere with that order. You will be expected to update your payments as you pay off your other secured debts.
Alimony and child support debts are priority debts that your bankruptcy trustee will pay off once they liquidate your non-exempt assets if you file for bankruptcy under Chapter 7. These debts will be included in your payment plan if you apply for Chapter 13. In Chapter 13, you must complete payment of these debts by the end of your repayment period.
Other Debts Bankruptcy Cannot Eliminate
Except in rare cases, filing for bankruptcy does not result in the cancellation of student loans. A student loan can only be discharged after filing for bankruptcy if you demonstrate that repaying it would cause undue hardship. That is a difficult criterion to meet. That is why it could be difficult to discharge your student loan debt after filing for bankruptcy. However, if you can demonstrate that you cannot afford to repay your student loans now or in the future, the judge could discharge them.
Tax debts and other nondischargeable debts cannot be discharged by bankruptcy. Here are some examples of non-dischargeable debts in Chapters 7 and 13:
- Debts you fail to list when filing for bankruptcy
- Debts from personal injuries or death resulting from intoxicated driving
- Penalties and fines you received as punishment from criminal cases or traffic tickets
These debts can remain on the list you must pay once you file for bankruptcy.
While you can be able to discharge debts related to fraud after filing for bankruptcy, it could be impossible to do so entirely if the creditor files a claim against you. If your creditor learns of your bankruptcy, they can file an adversary proceeding against you. If their case is strong enough, the judge can add the fraud debt to the list of non-dischargeable debts.
Find a Competent Bankruptcy Attorney Near Me
If you are deeply in debt and looking for a way to manage your debts and obtain a fresh start in Sacramento, bankruptcy can be the best option. However, you must first understand the bankruptcy process, including its benefits and drawbacks and what it can and cannot do for you. That will prepare you for what to expect once the process is complete. A knowledgeable bankruptcy attorney can guide you through the process and explain your options so you can make an informed decision. At Sacramento Bankruptcy Lawyer, we can also assist you in preparing and filing a successful petition in court. To learn more, please contact us at 916-800-7690.
