Did you know Abraham Lincoln filed Bankruptcy? When facing overwhelming debt, bankruptcy is an option to regain financial stability, peace of mind, and time to set yourself up for future success. Many famous people have used bankruptcies including Abraham Lincoln, P.T. Barnum, Kim Basinger, Gary Burghoff, Ted Nugent, the King of Spain, Richard Nixon’s brother, and Tammy Wynette. Also, Mick Fleetwood and Henry Ford…yes, that Henry Ford.
Chapter 7 and Chapter 13 are the two most common and most available of the 6 different types of bankruptcy. Chapter 7 is commonly referred to as a liquidation, but if done right most assets are protected. Chapter 13 is usually referred to as a restructure and the court will protect you while following your three to five-year reorganization plan.
Quick Discharge of Debts
Chapter 7 can discharge most unsecured debts, such as credit card debt and medical bills. Discharge means they are no longer legal debts and you don’t have to pay them. With Chapter 7, there is no Repayment Plan, so you can get a fresh start more quickly. Under Chapter 7, you typically keep your home, car, and personal property but if you owe on them, you will still have to pay them. One of the features that makes Chapter 7 most attractive is that as soon as you file, an automatic stay goes into effect against creditors. A Stay is a court order that stops most creditors from pursuing collection actions such as foreclosing on your real property or repossessing your personal property including mobile homes and cars.
Time to Reorganize
Chapter 13 allows you to create a 3–5-year repayment plan to pay off your debts and during this time you can keep all your property, including non-exempt assets, as long as you comply with the repayment plan that you, your attorney and the court’s trustee agree to. This allows you to catch up late payments such as mortgage or car payments. One of the features that makes Chapter 13 attractive is it provides immediate protection from Foreclosure on your home. This can be valuable if you need some time to make some repairs and then sell your home. But you will eventually have to resume payments and pay off the debt if you want to keep the house.
Choosing Chapter 7 or Chapter 13
Generally, individuals look to Chapter 7 and businesses look to Chapter 13, but not always. What is best for you will always depend on your circumstances and your goals. You and your attorney will consider your assets, current income and expected future income as well as the types of assets you have and the debt you are facing. For example, if you have few valuable assets but have big unsecured debt (credit cards, medical bills, back rent) Chapter 7 might make sense for you. Your attorney will help you organize your debts into “secured and unsecured” so you can make a good decision. If you have equipment or nice cars that you have paid off, but you can’t make the payments on your other property (like equipment and cars) that you still owe on, you should consider Chapter 13 bankruptcy.
Bankruptcy Affects your Credit
If you are facing bankruptcy you have to be able to admit your credit is already damaged or is about to be damaged because you can’t make your payments. Bankruptcy “stays on your credit report” for up to 10 years, but without a bankruptcy, missing payments and being foreclosed on, or having personal property repossessed does too. It’s almost a question of deciding to control the damage as opposed to letting your creditors do what they will. If you file bankruptcy, you can start rebuilding your credit in as little as one year. For more information, contact a Bankruptcy attorney and they will help you organize your information to determine what plans you qualify for, and what is best for you.
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