Bankruptcy might be your way out! But before you decide bankruptcy is the answer, let’s talk about what bankruptcy can and cannot do for you.
Filing for bankruptcy is the legal way to remove your personal liability to pay debts, known as a discharge. One of the best things about bankruptcy is that an automatic stay goes into place as soon as you file. The automatic stay stops creditors from being able to collect on your debts or contact you regarding your debts.
There are two types of bankruptcies that an individual may file, a Chapter 7 or Chapter 13. A Chapter 7 filing is a liquidation bankruptcy. In a Chapter 7 bankruptcy, you will be able to discharge all of your debts, but any assets that you cannot protect will be sold to pay your creditors. Assets include all real and personal property, including but not limited to, vehicles, land, houses, clothing, furniture, and money in bank or financial accounts. You can protect your assets in bankruptcy through exemptions. A bankruptcy exemption is a monetary value of protection that allows you to protect assets up to that value. Any assets that exceed the exemption amount will not be protected and can be sold by the trustee.
A Chapter 13 is a structured repayment plan. In this bankruptcy, your debts will be combined into a repayment plan that is submitted to the court for approval. The plan will require you to make monthly payments for 3-5 years. This payment to the court must be made in addition to paying your other monthly bills. Any debts not paid at the end of the plan will be discharged.
What Bankruptcy CAN Do for You
Bankruptcy can be a great tool for getting a financial fresh start. Most of your debts can be discharged in 6 months for a Chapter 7 or 3-5 years for a Chapter 13. When your debts are discharged, you can still voluntarily pay debts back if you choose. This might be a way to maintain important business relationships that you may need down the line. Filing for bankruptcy will stop all collection activity including wage garnishments, bank garnishments, car repossessions, evictions, and foreclosures. A chapter 13 bankruptcy may also allow you to get caught up on default payments for homes, vehicles, and rent. Some of the commonly dischargeable debts include but are not limited to medical bills, credit cards, loans, judgement debts, social security overpayments, eviction debts, car loan deficiency balances, and past due bills.
What Bankruptcy CAN’T Do for You
While you may be thinking that bankruptcy sounds like the way to go, you need to understand what bankruptcy cannot do for you. Bankruptcy will not get rid of domestic support obligations, taxes, student loans, debts to pensions or similar devices, criminal fines and fees, restitution, any debts as a result of fraud, and debts for death or personal injury caused by operating a vehicle while intoxicated. If the majority of your debts fall into any of these categories, a bankruptcy may not provide you with a financial fresh start. Some of the debts listed above may be discharged despite these restrictions if they are successfully litigated in bankruptcy court. Be sure to consult with an attorney first.
Need Help?
The Alabama Bankruptcy Assistance Program (ABAP) is a collaborative project of the Alabama State Bar Volunteer Lawyers Program, the Huntsville Volunteer Lawyers Program, the Montgomery County Volunteer Lawyers Program, and the South Alabama Volunteer Lawyers Program. Through ABAP, clients may qualify for free legal assistance when filing for Chapter 7 bankruptcy.
If you are not sure whether bankruptcy is right for you, call ABAP at (888-857-8571) to see if you qualify. We would be glad to help you figure out the best next step for you.
Thank you to Hilaire Armstrong, Esq., for providing this information for the Alabama Bankruptcy Assistance Program. The foregoing is provided for informational purposes only and is not intended to constitute legal advice. You should consult with a licensed Alabama lawyer to get advice about your particular situation.
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