Understanding Bankruptcy – Is It the Correct Choice for You?

When faced with pressing financial difficulties, the question often arises: should one consider filing for bankruptcy? There are critical factors to evaluate in making this monumental decision.

  1. Educate Yourself on Bankruptcy Options. There are chiefly two types of personal bankruptcies:
    • Chapter 7 is a liquidation bankruptcy where many debts can be discharged in a relatively quick process, typically within three to six months.
    • Chapter 13 is a reorganization bankruptcy, which allows you to repay debts through a structured plan over three to five years using your income.
  2. Explore Simpler Solutions. Your financial situation may not be as dire as it seems. You might be judgment-proof or have overlooked avenues available to you.
  3. Check Your Eligibility. Requirements for filing under Chapter 7 may not be met if your income is sufficient to manage a Chapter 13 repayment plan. Alternatively, you may be ineligible for Chapter 13 if your debts exceed certain limits or if your income is insufficient.
  4. Be Aware of Non-dischargeable Debts. Certain obligations such as child support are not forgiven through bankruptcy.
  5. Protecting Your Home. While declaring bankruptcy does not remove the responsibility of paying your mortgage, it can alleviate the burden by discharging other debts. In Chapter 7, considerable home equity may be at risk unless adequately protected by exemptions; Chapter 13 may allow you to retain your home and settle mortgage arrears through your repayment plan.
  6. Understanding Asset Risks. State exemption laws and whether property serves as secured debt collateral determine the retention of assets. In Chapter 7 bankruptcy, significant equity in a car not protected by exemptions could result in loss of the vehicle.
  7. Credit Card Debt Elimination. Bankruptcy generally erases most credit card debts and unsecured loans, except in cases of extravagant spending or application fraud.
  8. Safeguarding Retirement Funds. Typically, pensions, retirement accounts, and life insurance policies are not forfeited in bankruptcy. It is crucial to understand what is shielded by state laws.
  9. The Impact on Cosigners. A Chapter 13 filing offers protection to cosigners; however, Chapter 7 may leave them responsible for any unresolved debt.
  10. Personal Life Considerations. Bankruptcy is a public and detailed process, requiring full financial disclosure with potential loss of privacy. Additionally, Chapter 7 could result in property loss, while Chapter 13 could entail several years of court oversight for your financial dealings.

It is essential to approach this decision with caution and thorough understanding. If you’re contemplating bankruptcy, our team at James H. Wilson can guide you through this complex process. For a detailed discussion of your specific circumstances, call us at 804.740.6464 to schedule a consultation.

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