When is bankruptcy a good idea?
Many people believe that bankruptcy is and will always be nothing but a bad thing. In the public mind, bankruptcy means losing your house, your livelihood; everything you own. This is, for obvious reasons, an undesirable mental image. However, bankruptcy may be a wise and important choice to make, depending on your personal debt situation.
So, how do you know if filing for bankruptcy is the right decision for you? Understanding how bankruptcy works and what it is for can help.
What is bankruptcy?
There are two different kinds of bankruptcy, Chapter 7 and Chapter 13. Each has a different function and purpose.
To briefly quote our more in-depth article about Chapter 7 bankruptcy, “A Chapter 7 bankruptcy is a bankruptcy case in which we give the debtor, the person who owes all the money, a fresh start, a new beginning. It essentially wipes out or erases the debt that the debtor has.”
In a Chapter 7, your assets may be seized and sold to creditors in order to pay off your debt. However, most people eligible for Chapter 7 bankruptcy do not have more assets than they are capable of protecting. In this case, you will be able to eliminate your unsecured debts without losing what you own.
In contrast, a Chapter 13 bankruptcy is “a wage earner’s reorganization. What that means is … you will make a regular monthly payment, called Chapter 13 plan payment to the trustee who is assigned to the case. In the state of Utah, there is only one trustee, and at this time, it is Lon Jenkins … Depending on how your plan is structured, you may or you may not pay off all of your debt in five years. It really depends on the type of debt and how the plan is structured. The payment is usually a minimum of $100 a month, to the Chapter 13 trustee for at least three years.”
Since Chapter 13 bankruptcies help you repay your creditors with a piecewise payback plan, it is highly likely that you will be able to retain your assets.
How do I know when filing for bankruptcy is a good idea?
Bankruptcy is different for every individual situation, so understanding your debts is the very first step to knowing if filing for bankruptcy is the right choice for you. If all other alternatives to bankruptcy are exhausted or not working, it may be time to consider bankruptcy.
However, it is important to note that there are debts that a bankruptcy proceeding cannot relieve. These debts can include:
• Child support
• Spousal support
• Criminal restitution
• Tax debts
• Bad checks
• Credit card fraud
• Student loans
The rules and regulations for non-dischargeable debts are complicated and should be discussed with a lawyer or someone else with extensive knowledge before filing for bankruptcy.
Figure out what will happen to your home, car, pension, credit score, co-signers, and personal life if you file for bankruptcy. Consult with a lawyer or other knowledgeable person about the projected outcome and consequences of filing for bankruptcy.
If you are considering bankruptcy and would like more information or guidance about your options, call (801) 676-5506 for a free initial legal consultation.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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