Many people who are considering filing for bankruptcy may have misconceptions about the way it works, and this is understandable. Bankruptcy law is a complex field, and it is not always clear what property you get to keep, what property you have to sell, and how long it might take to rebuild your finances following a bankruptcy filing.
Below are some important facts that people may not know about bankruptcy. It is important to remember, though, that legal advice will always vary depending on each individual’s situation. A Morris County bankruptcy lawyer can help you understand the important aspects of a bankruptcy filing so that you can make the best decision for your needs.
General Bankruptcy Facts
- You can bounce back quickly from a bankruptcy filing. While it is true that bankruptcy is a major decision that can be on your credit report for up to ten years, people who choose to act responsibly with their finances following a bankruptcy filing eventually achieve interest rates and credit scores comparable to people who have never filed.
- Both spouses do not have to file for bankruptcy together. It may be preferable for just one spouse to file for bankruptcy if he or she is the only one with a significant amount of debt.
- Although bankruptcy requires the assistance of an experienced and knowledgeable attorney to ensure that you make the right decisions, bankruptcy does not usually take a long time. For a basic Chapter 7 bankruptcy case, it is possible to proceed from filing to debt discharge in six months.
Chapter 7 Bankruptcy Facts
- A Chapter 7 bankruptcy is ideal for someone with few assets. A bankruptcy trustee will take all items that comprise your bankruptcy estate and sell them to repay your creditors. If there is debt left over, the court will discharge it.
- A Chapter 7 bankruptcy is also ideal for someone with mostly unsecured debt. Examples of unsecured debt include credit card debt, medical bills and personal loans. Secured debt is debt for which your creditor can repossess your property if you fail to make payments such as car or home debt.
- Not everyone qualifies for Chapter 7 bankruptcy. The court will use a “means test” to look at your income and expenses in order to determine whether you qualify to file for Chapter 7.
- In some cases, a Chapter 7 bankruptcy will be able to discharge your overdue taxes.
- A Chapter 7 bankruptcy will not erase all of your debts. Some of the types of debt that, in general, a Chapter 7 bankruptcy will not discharge includes student loans, child and spousal support and debts related to fraud or other criminal activity.
- There are exemptions available to people who file for Chapter 7 that protect particular assets up to a certain amount. In other words, you will not lose everything by filing for bankruptcy.
Chapter 13 Bankruptcy Facts
- A Chapter 13 bankruptcy is ideal for someone with a steady income and secured debts. This bankruptcy is the one with which it is most likely you will be able keep property like vehicles or a house.
- Chapter 13 bankruptcies employ repayment plans instead of discharging debt like a Chapter 7 bankruptcy. With a Chapter 13 bankruptcy, you reorganize your debts and pay them back over the next three to five years.
- While a Chapter 13 bankruptcy will likely enable you to keep your most important assets, the repayment plan is strict. If you fail to abide by its terms, you could end having the court convert your bankruptcy to a Chapter 7 one, which will then liquidate much of your property.