If you are experiencing money problems, you may be considering filing bankruptcy to get rid of most of your debts. While bankruptcy should be your last resort due to its lasting negative effect on your credit history, it may be the only option in some cases, at least if you want to avoid getting sued or becoming homeless. Consider a few facts to know before you file.
One of the most common types of bankruptcy is chapter 7, which involves liquidating your assets. This means that you must sell most of your non-exempt assets, and then pay off your creditors with the profits. The benefit of this route is that you can get rid of most of your debts, even if the profits from selling your assets do not completely pay them off. This way, you will only have to pay a portion of your past due bills, or even none at all if you have few assets to sell. Despite the requirement of selling most of your belongings, you are allowed to keep your house in many cases, though you may have to sell it if you have lots of equity in it. You can also keep one car, as long as you can prove that you need it to get to work. Otherwise, most other items are sold to pay off credit card bills, medical expenses, and various other unsecured debts.
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Another type of bankruptcy that can help eliminate money problems is chapter 13. Unlike chapter 7, you will have to pay back the majority of your creditors, but you can usually negotiate a reduced amount. You will have to create a payment plan, to which your creditors and the court must agree, allowing you to pay your creditors over a period of three to five years. Once the time period for the payment plan is up, you will be considered debt-free, eliminating your money problems. This chapter allows you to keep many of your assets, but you will have to sell any items that the court considers unnecessary or excessive.
Note that bankruptcy cannot get rid of all money problems, as some debts must be paid. For example, you cannot get out of paying child support or alimony. Back taxes that you owe from less than three years ago also need to be paid, as do student loans. Additionally, you cannot expect to keep a secured asset without paying for it. This means that you cannot stop paying your mortgage or car payment, and expect to keep these assets. Anything that can be taken back by the creditor will be, which is why you need to keep current on payments for your home, car, electronics, and any other tangible items. Otherwise you will lose them.
In general, if most of your money problems revolve around unsecured debts like credit card bills, medical expenses, or unpaid personal loans, you can consider bankruptcy. However, this is not a way to get out of paying child support, student loans, or back taxes. Talk to a lawyer if you are unsure of whether to file bankruptcy to solve your money problems.
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