Your debts are outpacing your payments, and you feel like you are just falling further behind. You're looking for a way out of the unending cycle of late fees, interest, and collection calls. You may feel trapped, but you do have options. Find out why a Chapter 7 bankruptcy may be right for you.
In this blog post, I will discuss how a Chapter 7 bankruptcy works. I will explain why Chapter 7 may be better for certain filers than Chapter 13 or debt consolidation options, and what to look for to determine if a Chapter 7 bankruptcy is right for you.
Think of a Chapter 7 Bankruptcy as a reset button on your debt. If you owe more money than you think you will be able to pay back, or can't keep up on your payments, a Chapter 7 Bankruptcy may be a good option. It "discharges" many of those debts, making it impossible for debt collectors to come after you for the unpaid balances. To do this, your bankruptcy trustee will sell any non-exempt property you have and distribute the proceeds between everyone you owe money to. Creditors have an opportunity to appear for the meeting with the trustee, but rarely do. So you generally don't need to worry or feel intimidated going in.
Bankruptcy isn't designed to leave you homeless, though. Federal bankruptcy law allows you to "exempt" some of your property, protecting it from sale and distribution to your creditors. Your Michigan bankruptcy attorney and the trustee will often be able to set aside up to:
You can also protect some of these important assets necessary for living by continuing to make payments on your mortgage or car loan while the bankruptcy process is going on. Deciding which debts to reaffirm and continue paying is one reason it is important to have a trusted and experienced bankruptcy attorney working on your case.
There are other options available to people with overwhelming debt, including debt consolidation and Chapter 13 Bankruptcy payment plans. Which option is best depends on your specific circumstances, and your short and long-term goals. Chapter 7 Bankruptcy may be right for you if:
Chapter 7 Bankruptcy is the only option that eliminates debt outright. It frees the debtor from collections or personal liability on the money not paid. Debt consolidation and Chapter 13 Bankruptcy each assume you will continue to repay most if not all of your debts, but on a modified schedule.
Once a Chapter 7 Bankruptcy is filed, your debt could be discharged in as little as 90 days. When the court issues a discharge order, the trustee will distribute your assets to your creditors and the case will be closed. This means you won't have to worry about ongoing debt obligations or making sure you keep up with your bankruptcy payments. Debt consolidation and Chapter 13 bankruptcy can take years of regular payments before they resolve.
Because debt consolidation and Chapter 13 include ongoing payments, they can tie up your income for years into the future. If your income is erratic or unreliable — maybe because you are self-employed or have seasonal employment — you may want to free up that income, especially if sticking to a budget during the lean months is a challenge.
Sometimes, Chapter 7 Bankruptcy is the only option to close out a person's debt. You must qualify to file a Chapter 13 bankruptcy and hold on to more of your assets. To qualify, a debtor must:
If you don't meet the qualifications to file a Chapter 13 Bankruptcy, or you fall behind on your payment obligations, you may have no other option that to file a Chapter 7 Bankruptcy or convert your existing case to a Chapter 7.
When considering whether a Chapter 7 Bankruptcy may be right for you, it is important to remember that some debt cannot be discharged. Chapter 7 may not make much sense if most of what you owe comes from non-dischargeable sources, including:
In these cases, debt consolidation and careful budgeting may be wiser. Similarly, if you have large assets you hope to protect, it may be better to see if you can qualify for Chapter 13 Bankruptcy so you can hold on to what you have.
Any time you are considering bankruptcy, your first step should be to sit down with an experienced bankruptcy attorney and weigh all your options. At John A. Steinberger & Associates, P.C., we are a full-service bankruptcy law firm in Southeast MI. We serve debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. If you think a Chapter 7 Bankruptcy might be right for you, call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.