There are various reasons for your debts, but one thing is sure, too much debt cause disastrous financial and psychological consequences. You may have been responsible for your debt (though unwise purchase decisions. Many people also fall into debt due to extensive and unforeseen medical expenses. Regardless of the reasons for your debt, bankruptcy law provides you with an opportunity to manage or relieve your debts for a financial “fresh start.”
However, making a hasty decision and filing bankruptcy can be a big mistake because there are also other options that can offer a good solution.
Let’s first look at the bankruptcy solution and what options you have to get over your financial debts.
You can file bankruptcy independently or hire a lawyer. Hiring lawyer is a good decision because bankruptcy is a complex process and an experienced bankruptcy lawyer can help you through the entire process. The lawyer also will be knowledgeable about the bankruptcy laws as well as the local court rules.
There are two types of bankruptcies for individual filing – Chapter 7 and Chapter 13. Though both Chapters offer you debt relief solutions, there are some differences between them.
Under Chapter 7, you need to qualify to be eligible to get Chapter 7 relief. The bankruptcy Code requires “means test” factor for eligibility. The means test is based on the debtor’s income and expenses. To qualify under this Chapter, the income of the debtor must be below the State’s median income.
Chapter 7 allows debtors to keep most necessity items that court thinks necessary for his financial fresh start. All other properties, not exempted, by the court are disposed by the bankruptcy trustee for cash, and the sale proceeds are distributed to creditors. The financial debt of the debtor is then discharged under Chapter 7.
The debtors, who do not qualify under Chapter 7, are required to file bankruptcy under Chapter 13. The “means test” is not a qualification criteria under this Chapter. The debtor proposes a repayment plan, subject to court’s approval, for repayment of his debts over 3 to 5 years. However, the court requires debtors to disclose all his properties to the court. The debtor needs to reveal all his properties in court’s bankruptcy form Schedule A/B: Property.
Under Chapter 13, the court will generally allow the debtor to keep his house. The debtor will only get a full discharge of his debts when he has completed repayment in accordance with a court-approved payment plan. The court also prevents creditors from taking any legal or other actions against debtors while court proceedings are in progress or after the debts are discharged.
Harassment, intimidation and threats of violence are weapons sometime used by debt collectors. These threats may prompt debtors to file for bankruptcy. In this situation, you should be aware of the protection given by the law against creditor harassments. The State and Federal laws have specific provisions that prevent creditors from using threats and abusive language, calling debtors at the workplace or at an unreasonable time, using violence, taking illegal actions to collect debts, claiming more than what debtors owe, or impersonating third parties for debt collection.
Although bankruptcy is a good option for debtors to get relief from their debts, there are unfavorable aspects to consider before filing bankruptcy. Eliminating debts legally through bankruptcy can put a dent in debtor’s credit rating because bankruptcy remains on the Credit report for a number of years. The bankruptcy process is also complex. The cost and time are other factors that a debtor needs to consider when filing bankruptcy. In addition, there are still some debts that the law requires you to pay irrespective of bankruptcy debt relief.
There are also alternatives for debtors to settle their debts. Before you make a final decision, you should consider other debt settlement options because they may be effective solutions to your debts.
Negotiate with Creditors
You may be passing through hard times because of your mounting debts and planning to file bankruptcy, but before you decide, you should attempt negotiating with creditors. If you are not able to make full payment, then propose a repayment plan where the debts will be paid in installments over time. If the creditor is unreasonable and does not accept your proposal, you can sell some of your assets and pay the sale proceeds to creditors. You can also ask for relief from paying fees and interest. When creditors realize that you will file if your repayment plan is not accepted, they may give consent to your proposal.
Debt Management Plan
If you are of the opinion that you will not be able to negotiate with the creditors, you can request the help of credible credit counseling agencies and use their skills to negotiate with creditors on your behalf. The credit agencies have expertise in negotiations. They will assess your income, debts, and assets, and create a debt management plan to pay your creditors. Creditors often agree to repayment plan proposed by the credit counseling agencies.
If you are deeply in debt but do not have large assets or money to pay creditors, you choose not to worry about debt repayment because you are “Judgement Proof.” The creditors cannot also collect your debts because you have nothing to pay them with. The creditor may obtain a judgment against you, but cannot collect because you are Judgement Proof. The government also gives protection to certain types of your income source such as Unemployment benefits, Social Security Benefits, Child Support, and Public Assistance benefits.
When you plan to file for bankruptcy, you should consider all these options for your debt settlement and fresh financial start. You can also consult a bankruptcy lawyer and decide what is in your best interest.
Subodh Maheshwari has long years writing experience. His legal background helps him write articles on bankruptcy and related issues. You can also find more on legal debt relief solutions and information on bankruptcy lawyers in Wichita, KS on his legal blog.