Bankruptcy questions call for legal help. If you are sure you want to file for help, go ahead and ask a seasoned bankruptcy attorney. However, if you are still on the fence, or want to know more, this guide can help.
When should you file Chapter 7 bankruptcy?
First, what is Chapter 7 bankruptcy? It's a "liquidation," where your assets are sold off to pay back debts. There is no limit on how much you can owe, but there is a limit on how much you can make. If you make more than your state median income, you will have to file Chapter 13 bankruptcy.
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The best time to file Chapter 7 bankruptcy is when you have a lot of unsecured debts - monies owed on credit cards and medical expenses, for example. If you owe a large amount of money, you can discharge most debts with a Chapter 7 filing.
When should you file Chapter 13 bankruptcy?
What is Chapter 13 bankruptcy? It's a "debt repayment plan," where you pay on debts over an extended period of time. While Chapter 7 takes months, Chapter 13 takes years. This form of bankruptcy is best if you owe secured debts - monies owed on your home and car, for example. If you do not pay the debt, you stand to lose the asset, but by filing you stop all collections against you and can start paying off the debt.
Can you keep your home?
If you really want to keep your home, you may want to avoid filing Chapter 7 bankruptcy. That discharges the debt, but you lose the home. Or you can pay off the mortgage separate from your Chapter 7 filing, another useful option. If you file Chapter 13 before your home goes into foreclosure, you get protections from it being taken, and can start making payments on it. Foreclosures are very common of late, but you do have legal protections, and most states, like Texas, have laws designed to help you.
Can you save money?
If you're looking to save money, Chapter 7 may be best, as you have to pay on debts with Chapter 13. You cannot discharge all debt, though, as child support, alimony, taxes, and some other debts must be paid. However, if your main problem is medical debt (one of the leading causes of bankruptcy), you can wipe out that $40,000 bill (or whatever it is) in a matter of months.
When should you avoid bankruptcy?
There are some points where bankruptcy is a bit drastic. Say for example you owe $2,000, you have a job, but you don't make a lot. Because you owe a relatively small amount, an amount you can likely pay in 1-2 years time yourself, bankruptcy may not be necessary. Or if you have a few debts that you simply can't pay yet, and you're being harassed by creditors, don't let that force you into a bankruptcy. It's an option, but not always your best choice.
Who can help?
Look locally for a seasoned bankruptcy attorney. If you have questions, if you just want more information on your options, or if you simply want to get this process started, an attorney is essential to discharging debts and protecting assets.
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