Posted on: 19 October 2018
Bankruptcy is not something you may think about until your financial situation becomes dire, but if you find yourself in a tight spot financially, it is something you may be considering. When people think of bankruptcy, it is a Chapter 7 filing that likely comes to mind. This is when your debts are discharged, and you get a fresh start. However, there are many misconceptions about a Chapter 7 bankruptcy, and it may not be the magic elixir you think it is. The following are a few misconceptions.
You may not be able to file for Chapter 7 bankruptcy
Often people think that bankruptcy is simply a choice. When you get to the point where you are ready, you contact an attorney. Many years ago, this wasn't far from the truth, but the laws have been tightened up to reduce the amount of abuse. Today, you must qualify for a Chapter 7 bankruptcy. Your income will need to be below your state's median income level, and your income will need to be insufficient to pay back your debts. An attorney can help determine if you qualify.
A Chapter 7 bankruptcy doesn't cover all debts
Student loans are an important example of this. Many people who are overwhelmed by student debt will, at some point, think about bankruptcy, but a Chapter 7 filing will not help. Certain legal judgments, including back child support, cannot be discharged. Secured debt needs to be satisfied by liquidating the collateral. In general, Chapter 7 will discharge unsecured debt like credit cards and personal loans.
A Chapter 7 bankruptcy does not help much in a foreclosure
If your home is going through a foreclosure and you file for a Chapter 7 bankruptcy, the foreclosure will come to a halt. But this is only a delay in the foreclosure. It will not stop it. However, an attorney may be able to prevent any fees related to the foreclosure sale being accessed to you. If you can make your current mortgage payments but owe back payments, it may be possible to file for a Chapter 13 bankruptcy. This is a reorganization of your debts. Your back payments and fees may be rescheduled by the courts, and this may save your home from foreclosure.
The three issues above related to Chapter 7 bankruptcy should make it clear that this form of bankruptcy may not be the solution you are looking for. However, you should always consult an attorney. Personal bankruptcies are often more complex than people think they are. And keep in mind, if you are in need of debt relief, but a Chapter 7 filing isn't the answer you're looking for, a Chapter 13 bankruptcy may still be an option. Contact a firm, like McElrath Law, for more help.Share