When most people consider filing for bankruptcy, they think of Chapter 7, also known as liquidation. It’s the only form of bankruptcy available to individual debtors that can discharge most debts and prevent creditors from taking future collection actions. Read on to find out about this common form of bankruptcy to see if it offers the right solution.
What Debts Will Be Discharged?
During a liquidation, most forms of unsecured debt will be discharged. Those include things like medical debt, personal loans, and credit card debt. Filing for bankruptcy will not, however, discharge debt from student loans, alimony, child support, court fees or penalties, and most types of taxes.
Who Can File for Bankruptcy?
Only debtors who pass what’s known as a means test will be eligible to liquidate their assets under US bankruptcy law. The means test evaluates income, assets, and debts to determine whether the filer can reasonably be expected to pay back creditors. People who cannot pass the means test may still be eligible to file for Chapter 13 bankruptcy, which typically involves restructuring debt instead of a full discharge.
Will Filing for Bankruptcy Stop Wage Garnishment?
Filing for bankruptcy will place a hold on wage garnishment. The Notification of Stay will be mailed to creditors and employers as soon as the bankruptcy petition is filed. In some cases, debtors may even be able to get back some of the money that has been taken from their checks.
Can Filing for Bankruptcy Stop Lawsuits?
Filing for bankruptcy also places an automatic stay on lawsuits, including foreclosures. Just keep in mind that this stay may only be put in place temporarily. Homeowners who want to put a stop to foreclosure proceedings without ultimately losing their properties may be better off restructuring their debt through filing for Chapter 13.
Should Married Couples File Together?
If a married couple shares finances and debts, it usually makes sense to file a joint bankruptcy petition. If both spouses are liable for debts and only one of them files for bankruptcy, creditors can still attempt to collect from the person who did not file. Plus, filing a joint petition only incurs one filing fee.
Does Filing for Bankruptcy Mean Losing All Assets?
Debtors must forfeit most of their assets after having a bankruptcy petition approved, but there are some exemptions. Forms of exempt property include unmortgaged homes and vehicles, tools required to perform a trade, some types of jewellery, household items, and personal items, and funds in retirement accounts. When in doubt, ask a lawyer what types of property are exempt.
Do Bankruptcy Filers Need to Hire Attorneys?
There’s no legal requirement that people filing for bankruptcy secure legal counsel. However, bankruptcy laws are quite complex, and most people can benefit from competent legal representation. Attempting to file for bankruptcy without a lawyer can lead to unnecessary delays, denied petitions, losses of what should be exempt property, and even legal trouble should the filer be accused of fraud.
The Bottom Line
The decision to file for bankruptcy should never be taken lightly since it will impact a person’s credit report for years to come. The best course of action for those just beginning the filing process is to schedule a consultation with a bankruptcy lawyer. Write down a list of additional questions, bring it along, and get all the answers required to make an informed decision.