It’s probably difficult to believe, but bankruptcy does provide some financial advantages. Bankruptcy has a stigma tied to it that makes it seem all bad. However, there are benefits to know about to see if it is to your advantage to file for bankruptcy.
Bankruptcy cases are all handled in federal courts. The rules and regulations of bankruptcy are outlined in the U.S. Bankruptcy Code. Filing for bankruptcy falls under one of the Chapters of the code.
All bankruptcy claims are handled through the Bankruptcy Chapter Code. The basic Chapters are:
- Chapter 7: Liquidation
- Chapter 11: Repaying debt plan while still in operation
- Chapter 12: Related to farmers and fishermen
- Chapter 13: A repayment plan with 3 to 5 years
- Chapter 15: International debt
The most common types of bankruptcies typically fall under Chapters 7, 11, and 13 of the code.
This article will give you some background on how claiming bankruptcy can help you before you file a claim.
When you claim bankruptcy under Chapter 7 you will either be able to pay creditors in a relatively short amount of time or get much of your debt discharged. Types of unsecured debt, such as personal loans, can be completely removed with no obligation for the debtor to pay.
After you file a claim, not all debts will disappear, but at least you will be saved from constant calls and notifications from creditors waiting for the owed balance. A court order will protect you from such things as lawsuits concerning your debt, home foreclosures, or property repossession. This suspension is called an automatic stay, but it doesn’t protect you from paying certain debts. In Chapters 7, 11, and 12 there are 19 categories not included in dischargeable debts. These may include specific types of taxes, child support, debts for personal injury caused by the debtor, among others.
One of the biggest advantages of claiming bankruptcy is removing credit card debt. Other dischargeable debts include utility bills, personal loans, and medical bills. This means you are not legally responsible to pay for these debts.
Considering this trying year of COVID-19, it’s expected that many businesses and individuals will have to file for bankruptcy. When doing so, you want to minimize losses and this page will give you more details on how that can be accomplished. Getting into contact with a skilled bankruptcy lawyer will simplify the process and give you a clear understanding of what to expect.
Some taxes will have to be paid while others may be eliminated. You are more likely to be discharged from paying taxes if you file your claim under Chapter 7 rather than Chapter 13. The reason being, under Chapter 13, you are using a structured plan to repay your debt, while Chapter 7 eliminates you from certain debts and, in some cases, even federal taxes. But this depends on the type of tax, how old the tax is, and the debtor has not willingly tried to evade taxes.
Filing for bankruptcy doesn’t mean you have to lose all your possessions. The law makes exemptions so that you can keep personal properties that mean the most to you. You don’t want to face the consequences of foreclosure on your home or being evicted, for instance. Bankruptcy can protect you from losing these urgent needs. Chapter 7 doesn’t protect you from paying your mortgage, but it will buy you time to restructure your finances to pay your mortgage debt.
Even though bankruptcy has negative consequences, one consequence you won’t have to face is being discriminated against simply because you filed for bankruptcy. For instance, if you intend to seek employment at a future stage, an employer doesn’t have the right to discriminate against you because of your bankruptcy.
Bankruptcy opens the door for you to get a new financial start without the burden of debts. Many times when having claimed bankruptcy, you will be asked to take a credit counseling course. Under this obligation, you will begin to learn to handle your finances better. You should know that before you file for bankruptcy the Federal Trades Commission requires you to take mandatory courses in credit counseling.
Bankruptcy is a serious, legal step to take that does not suit everyone, nor all circumstances. In most cases, you will need a bankruptcy attorney to inform you of your options and guide you through the process. Eventually, your credit score can be repaired and you can restart your financial life debt-free.