You’ve pulled the plug and filled for bankruptcy, attempting to overcome the massive debts placed on you. Still, even bankruptcy has its limits, and you need to figure out what you can and cannot do. Using bankruptcy to combat your debt can work, especially if you are besieged by collection calls and lawsuits.
There are two common chapters of bankruptcy. Chapter 7 allows you to liquidate some of your property or assets to gain some cash. Chapter 13 puts you on a payment plan to make sure that the debts can be paid over a few years. Each plan has different benefits for you, and here’s what filing for bankruptcy can mean for you.
What Does Bankruptcy Do?
Bankruptcy can stop collection calls, garnished wages, and lawsuits. It can also stop various types of debt, with some exceptions. While credit card debt, medical bills, and personal loans can all be stopped, you will still need to pay some debts regardless of the plan you pick.
You can file Chapter 7 or Chapter 13 bankruptcy, and they will help you wipe out your debt. Even with different benefits and drawbacks, the most important thing to know is that they give you all the tools to manage your debt.
Bankruptcy also stops the harassment from creditors using an ‘automatic stay’ put in place by the court. This stops creditors from coming after you and puts a freeze on lawsuits and wage loss. It can also temporarily freeze an eviction, repossession, or foreclosure on a piece of property.
Depending on which chapter you get, you can either create a payment plan to handle the debt. You can also liquidate some of the assets. Either way, you’ll be able to pay off the frozen loans and potentially remain in the house without an eviction.
What Can’t It Do?
Bankruptcy, as powerful as it is, is not a cure all for your debt woes. For starters you will need to pay required payments such as child support and alimony, and you won’t be able to stop the foreclosure of a property that you cannot reasonably afford. The creditor can still take a lien where they can sell the property at auction and that money goes towards your loans.
Student loans also can’t be eliminated unless you can prove that you will have ‘undue hardship’ by repaying them. It’s a tough standard to be qualified for, and you will need to prove that you can’t pay for your loans now or in the future.
Tax debts and other nondischargeable debts cannot be paid off as well, and they will either stay with you or you will pay them in full through the repayment plan. This depends on which chapter you file for.
Bankruptcy is a powerful tool, but it does have its limits for your business. Make sure to talk to an expert before filing, and you will be able to get a clear picture of how bankruptcy can help you.