Deciding When & How To File For Bankruptcy

There’s really no minimum or maximum level of debt severity needed to file for bankruptcy because everybody’s financial situation is different.

If you’re a fixed-income retiree with $10,000 worth of debt, that might be enough to sink you. Suppose you make $1,800 monthly on social security, but that’s all you get. Even if you have a mortgage paid off, there’s little money left over once you pay for groceries, utilities, car payments, and insurance… Not to mention all the interest rates and fees.

On the other hand, if you’re making $80,000 a year, a $10,000 debt burden wouldn’t necessarily be cause for worry. Of course, I’m not saying that $10,000 in debt is nothing. However, if you make that much money yearly, you’re most likely in a position where you can pay the debt off.

Regardless of the financial situation, if a client tells me there’s a specific reason that they want to file bankruptcy, I’m not going to say I won’t do it. There are many reasons a person might choose to file for bankruptcy – and most people can because there’s no threshold for debt.

Will a trustee ask you, “This doesn’t seem like that much debt, why are you filing?” Perhaps. But a trustee can’t kick you out of filing for bankruptcy. It is your right to file for bankruptcy when you qualify and feel that you need to… but the better question is this: Is filing for bankruptcy your best option?

What It Means To File For Chapter 7 Bankruptcy

Chapter 7 bankruptcy is called the “Liquidation Chapter”, though I rarely describe it that way. It’s called this because, in essence, you’re discharging all your debts by liquidating (selling) your non-exempt assets. The reason I don’t like to call it the “Liquidation Chapter” is because just that’s not how it works in every bankruptcy case.

Instead, I prefer to describe Chapter 7 bankruptcy as the easier, more affordable, and most common chapter. It’s the chapter most people think of when they think about bankruptcy. In a Chapter 7 bankruptcy, you’re telling the court that you can’t pay your debt. Then, if that debt is dischargeable, the court will order it to go away.

There are limits to the kinds of debt that Chapter 7 bankruptcy can discharge: namely student loans, child support, alimony, certain taxes, or governmental debts. Outside of this list, most other debts will be released.

What’s more, in a Chapter 7 bankruptcy case, you won’t typically be required to pay to keep your assets. Of course, every case is different, but more than not, my clients don’t have to pay anything. There’s no magic involved on my part here; it just depends on your situation.

For example, if you’re about to get a big tax refund, you’re not typically going to be able to protect it. In this case, you’re going to have to pay something. But overall, most people who file for Chapter 7 are getting debt relief and probably won’t have to pay anything outside of their attorney fees and court filing fees.

What It Means To File For Chapter 13 Bankruptcy

Chapter 13 bankruptcy is called the “Reorganization Chapter” because through this filing, you’re essentially asking for a more controlled form of debt relief.

Now, there are private companies out there that provide “debt relief services” by taking your money, pooling it together, and offering your creditors settlements. This is not what a Chapter 13 bankruptcy is, but it’s not all that dissimilar, either.

In a Chapter 13 filing, you’ll make a monthly payment to the bankruptcy trustee. The trustee then takes that money and disperses it to pay your creditors, your attorney, and to pay themselves. If you’re making your car or mortgage payment under a Chapter 13 plan, the trustee will disperse those fees as well.

The process of making payments to the trustee will happen over the course of five years on average, or three years in certain situations. At the end of that time period, you’ll get your discharge. Depending on your payments before filing for Chapter 13, you may only have to pay 15% of what you owed, though some people must pay the full amount of their debt, depending on their situation.

The benefit of this is that your creditors are controlled by the legal system in bankruptcy, unlike hiring a debt relief company that settles your debt. A debt relief company will say they’re handling your case, (and to be fair, they’re often doing their best), but they don’t control Capital One, American Express, or any other creditor. This means that if your creditors get impatient and want their money, they’ll still be able to come after you.

By filing for Chapter 13 relief, these same creditors must abide by the automatic stay, (also known as “the freeze”), that the bankruptcy creates. Then, the creditors must wait in line to see what kind of money the bankruptcy will allow them to recover – unless they make a claim for why they should be owed something more.

All in all, filing for Chapter 13 is more expensive and time-consuming than filing for Chapter 7 bankruptcy, but in the right situation, it can be beneficial.

With the guidance of a skilled attorney for Bankruptcy Law Cases In Florida, you can have the peace of mind that comes with knowing that we’ll make it look easy. An initial consultation is your next best step for more information on Filing For Bankruptcy Due To The Severity Of Your Debt. Get the information and legal answers you seek today by calling (407) 305-5599.