What are the Most Important Questions you should ask before Filing for Bankruptcy?

What are the Most Important Questions you should ask before Filing for Bankruptcy?

Bankruptcy is a legal proceeding in which an individual who cannot pay his or her bills starts fresh financially.  All bankruptcy proceedings are held in federal court.  The filing of bankruptcy immediately stops all creditors from seeking payment until your debts are resolved according to the law. 

Bankruptcy has many benefits and there are many different options to consider when thinking about filing for bankruptcy.  Are your debts adding up?  Are your creditors hounding you for money?  Do you have judgments against you for money and are your creditors going to start garnishing your wages?  All these are factors to consider.  Below is some additional information to think about when considering bankruptcy as an option.

 

(1)  What are the benefits of filing for bankruptcy?

Bankruptcy may make it possible for you to:

  • halt foreclosure on your home or car and may provide you a chance to compensate for missed payments
  • force a creditor to return property they have previously taken in their collection of your debt
  • stop creditors from seizing your wages as payment for your debt
  • restore suspended service or prevent termination of utility service.

(2)  What doesn’t bankruptcy do?

  • Bankruptcy cannot cure every problem. Specifically, it is usually not possible to:
  • eliminate rights of “secured creditors”. A secured creditor is a creditor who has taken a mortgage or lien on your property as security for a loan.  The most common examples are home mortgages and car payments.  Filing bankruptcy may allow you to force creditors to agree to payment plans, however, the creditor can reassume the property should you fail or delay in making those payments.
  • Eliminate certain types of debts singled out by the law for special treatment. These debts include child support, alimony, some student debt loans, court restitution orders, criminal fines and some taxes.  In Michigan, these debts are called “non-dischargeable debts.”

(3) What are the different types of bankruptcy?

In terms of personal bankruptcy, there is Chapter 7 bankruptcy and Chapter 13 bankruptcy.  Chapter 7 bankruptcy is known as “liquidation.” In a bankruptcy case under Chapter 7, you are essentially asking the court to eliminate your debts.  In contrast, in a Chapter 13 case, you file a “plan” with the court demonstrating how you will pay off a portion of your past-due and current debts over the next 3-5 years.

(4)  Under what circumstances should I file for Chapter 7?

The basic idea in a chapter 7 case is to eliminate all of your debts in exchange for giving up all of your property, except for “exempt” property, which the law allows you to keep.  In Michigan, most of your property will be exempt.  The property which is not exempt will be sold and the money from the sale will be distributed to creditors.  It is important to note, however, that if you file for Chapter 7 Bankruptcy you will not be able to keep your car or your house if you are behind on car loan payments or on your mortgage payments.  Chapter 7 does not eliminate the right of mortgage holders or car loan creditors to take your property in order to cover your debt.

(5)  Under what Circumstances should I file for Chapter 13?

If it is important for you to keep your home, car, or other property that is not exempt, you should carefully consider filing a Chapter 13 case.  A Chapter 13 case allows you to file a “plan” in which you show how you will pay off some of your past or current debts over 3-5 years.  Therefore, it is highly recommended that you file for Chapter 13 if you have the ability to pay off your overdue car loans and mortgage over those 5 years.

(6)  Can I own anything after Bankruptcy?

Yes. After filing bankruptcy you can keep your exempt property and anything you obtain after the bankruptcy is filed.  That said, if you receive a property settlement, inheritance or life insurance benefits within 180 days after your bankruptcy, that money may have to be paid to your creditors.

(7) Will Bankruptcy Affect My Credit?

Yes, bankruptcy will affect your credit.  How much it will affect your credit depends on the individual.  If you filed for bankruptcy, it is likely that you had poor credit before filing since you were late on car, home and other payments.  Bankruptcy will appear on your credit record for 10 years.  However, since bankruptcy does wipe out your old debts, you may now be in a position to build better credit since you are no longer saddled with those debts.  Additionally, there are some things you can do to rebuild your credit more quickly following a bankruptcy.  The seasoned attorneys at VanderBroek Law PLLC can give you more information to help you rebuild your credit score following a bankruptcy.

(8) When should I consider filing for bankruptcy?

Simply stated, you should consider filing for bankruptcy much sooner than you would think. Many people falsely assume that they should wait until they are completely buried in debt before filing. The following are some red flags alerting you to consult with a bankruptcy attorney to determine the right course of action: (i) if you know you cannot pay your mounting stack of bills; (ii) if you have begun to receive calls from debt collectors; (iii) if you are in danger of losing your home; (iv) if you are using loans to pay your bills; or (v) if you are liquidating your retirement process.

 

If any of the following apply to you, you should contact an experienced bankruptcy attorney immediately.  Your attorney can assist you with the entire process, including advising you on whether to file a bankruptcy petition, under which chapter to file and in the completion of all essential forms.  If you believe that bankruptcy is a possible solution to your financial problems, contact the seasoned attorneys at VanderBroek Law PLLC.  Call us at (616) 607-7522 to schedule your free consultation today.

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