Most people never imagine that they will need the relief of filing for bankruptcy, but sometimes debt builds up unexpectedly. Losing a job or a medical bill can lead to increased credit card debt and you may only be able to make minimum payments. Other bills are piling up, and before you know it, you’re overwhelmed. There are many benefits to filing for bankruptcy, but it is also important to weigh the consequences of filing for bankruptcy before moving forward.

First steps

Most people know that bankruptcy can discharge a lot of your debts, but you will have to make some important decisions to get there. First, we will perform the means test to help us decide which chapter of bankruptcy is best for you. If you pass the means test, you’re eligible to file for Chapter 7, which cancels most unsecured debts, including medical bills, credit cards, utility bills, and back rent. If your income is too high or if you have assets and property that you need to protect, Chapter 13 is a beneficial option. We will propose a payment plan to the court that will last 3-5 years, during which time you will make reduced payments based on your income. At the end of your repayment period, most remaining unsecured debts are canceled, greatly reducing the total you’ll pay on debts.

When you have debt that you can’t pay, you will no doubt receive calls and letters from creditors, which can be extremely stressful. One of the benefits of filing any chapter of bankruptcy is that the automatic stay will go into effect, which means your creditors should stop calling you as soon as you tell them you filed. This gives you some time to focus and get your finances in order.

Things to consider

While all of the positive things about bankruptcy are great, this legal decision is not without its consequences. Your credit score will drop, which can make it harder to get credit in the future or even rent a home. Also, not all debts can be included in bankruptcy. You will still be responsible for child support and alimony payments, although you may be able to modify the payments based on your new situation. Student loans can only be included in bankruptcy under very strict guidelines, but you may be able to work with your lender to find a repayment plan that best suits your needs. Back taxes are also generally not included in bankruptcy.

If you want to keep your property, like your car or home, you’ll need to keep up with these payments; if you are late, your creditor will seek repossession or foreclosure. It may be to your advantage to give up these items if the payments no longer fit your situation, or you can make these payments more reasonable by paying off other debts through bankruptcy.

Thinking about the benefits of bankruptcy can give you hope for your future, and I can help you make a solid plan to pay off debt and preserve as much of your property as possible. If you’re not sure how to proceed, please call or email me so we can talk.