Factors to consider before filing for personal bankruptcy

February 06, 2013

Factors to consider before filing for personal bankruptcy

Deciding to file personal bankruptcy is a serious decision, and the choice may not be appropriate for everyone who believes their debt is unmanageable. That's why it's important to speak with an attorney who practices bankruptcyto help you consider factors that apply to your personal situation and decide what type of bankruptcy may be appropriate.

Many people file bankruptcy because their financial situation is a detriment to their mental health while others file for bankruptcy because they cannot pay their bills and do not believe they will be able to pay their financial obligations in the future. The idea of being freed from unmanageable debt in the present to build and enjoy a financially comfortable future is preferred by many. Bankruptcy may be appropriate if some of the following factors apply:
-Most of your debts are unsecured debt like credit card bills or medical bills
-Your wages or bank account have been garnished
-Your total debt, not including your car or home loan, is more than you could pay, even over five or more years
-Your payments are more than 30 days behind on more than one bill
-Collection agencies are calling you at home or at work
-There are collection lawsuits pending against you
-You have high medical bills not covered by insurance
-You owe income taxes that you are currently unable to pay
-You have few assets
-You have little or no savings
-You had property repossessed
-Your mortgage lender has threatened or started foreclosure proceedings against your home


Filing for bankruptcy will allow you to pay creditors a portion of what is owed depending on your ability to pay, and after bankruptcy is complete the discharge from bankruptcy prevents creditors from trying to collect the remainder. For individuals there are two important types of bankruptcy: Chapter 7 and Chapter 13. Both types of bankruptcy require creditors to stop collections efforts, known as the automatic stay, and both types provide for plans to pay creditors overseen by a trustee that results in the discharge of debt.

Personal bankruptcy explained

Chapter 7 bankruptcy is known as "liquidation" because the trustee will sell or liquidate certain property that you own at the time you file the bankruptcy case. The trustee uses the proceeds of the sale to pay creditors. In many instances, you will not have any assets that the trustee can sell because of federal and state exemption laws that allow you to keep certain property valued at or below a specific amount. This usually results in keeping necessities. Property in Texas such as your homestead, a vehicle for each driver in the house, and household goods are generally exempt with some limitations. The property that the trustee may sell is referred to as "non-exempt" property. If all property is considered exempt, the trustee will not sell any property.

Many Chapter 7 cases last approximately 90 days, after which most of the filer's debts are discharged. Discharge means you are no longer responsible to pay the debt. However, some types of debts cannot be discharged and those debts must still be paid. Examples of debts that cannot be discharged include some taxes, child-support payments and student loans. Debts where collateral has been promised as in the case of a car loan or home mortgage do not necessarily go away in bankruptcy.

In addition, filing bankruptcy only allows you to discharge debts listed at the time of bankruptcy. Any debts incurred after the bankruptcy case begins must be paid as usual.

Chapter 13 bankruptcy is different than Chapter 7. In Chapter 13 bankruptcy you keep your property and you agree to pay your debts from your income according to a court-approved plan over a period of time. The amount you are required to pay to creditors depends on your circumstances; however, the payments made to creditors must total at least as much as creditors would have received in a Chapter 7 filing. Like a Chapter 7 proceeding, payments are made to the trustee who distributes them to creditors. A payment plan in Chapter 13 bankruptcy lasts between three to five years.

If you are considering personal bankruptcy, meet with an experienced bankruptcy attorney to discuss which form of bankruptcy is right for your specific circumstances.

Article provided by The Smeberg Law Firm, PLLC
Visit us at http://www.sanantonio-bankruptcy.com