Bankruptcy

When you realize that you are on the verge of going broke, you ask yourself if it is the right moment to declare yourself bankrupt. There is no “right moment” for such choice but you might want to consider this option when bills begin to pile up and notices for mortgage and loans foreclosures start coming in succession. Other significant considerations might be the difficulty to allocate payments to get out of debt within five years, or the loss of job or any other source of income. A costly illness or a divorce can also render a major financial setback.

Filing for bankruptcy involves a complicated legal process but could assist you in your financial recovery though it cannot liberate you from your non-dischargeable debts and priority claims such as alimony, child support, taxes, student loans, debts, and more. More often than not, bankruptcy and divorce go together. Filing for bankruptcy is further aggravated when you are also facing divorce proceedings where the latter also involves the division of assets and debts between you and your spouse. It influences your life particularly your property and personal finances. When one or both spouses file for bankruptcy, all the community property acquired during the marriage becomes part of the bankruptcy estate to pay debts.

It is wiser that you file bankruptcy first before going through the divorce process because negotiations on debt and asset division are easier. It also provides protection from debts and support if and when your spouse files for bankruptcy separately. However, filing for bankruptcy together would benefit both spouses because dischargeable debts are eliminated to provide you more money for support. The divorce is also simplified with the elimination of the family debt.

Bankruptcy is a legal option for people who cannot pay their bills or paying only minimum amounts, or cannot put himself out of debt within five years. If one is getting notices on foreclosures for mortgage or loans, bankruptcy is an option to catch up on payments, but would not automatically eliminate mortgages or loans without payment. Other causes for financial slow down could be by loss of job, a divorce, or an illness. This is an alternative to eliminate legal obligation to give individuals a fresh financial start. This benefits both the debtor and creditor considering that the debtor gets aid for their financial liability, and creditors regain a portion of how much they are owed. However, bankruptcy cannot always get rid of every financial debt, and shouldn’t always be considered the right stride for solving your financial problems. Bankruptcy cannot discharge debts selected by the bankruptcy law such as alimony and child support payments, student loans, recent back taxes, fines and penalties, large purchases of more than $550 for luxury goods bought within 90 days of filing, and cash advances of $825 within 70 days of filing.

Chapter 7
Chapter 7 bankruptcy or straight bankruptcy is the most common type of bankruptcy. Basically, Chapter 7 is a process of liquidation for individuals, couples or businesses wherein a trustee appointed by the court sells the debtor’s non-exempt property or assets, and the proceeds are allocated to the creditors. The Federal bankruptcy law decides if one is eligible to file for Chapter 7 bankruptcy. Based on the Census Bureau statistics, you are eligible for filing if your income is below the average income of families in Ohio. If your income is above the average income, your income in the past six months including mortgage and car payments, taxes, child support and school expenses would be considered. If you are still able to pay at least $100 a month to unsecured creditors over five years with deduction of the said amounts and living expenses provided in the IRS’s national collection standards, then you are not qualified for Chapter 7 bankruptcy, which gives you the only option, to file for Chapter 13 bankruptcy.

Chapter 13
Chapter 13 bankruptcy allows individuals to pay all or part of their debts over three to five years. In this case, the debtor can keep his properties and make regular payment to a trustee out of his future earnings, and the trustee pays the creditors with the required payment. Filling a Chapter 13 bankruptcy is considered when you have mortgages or loans, tax obligations, child support, and student loans that cannot be discharged by Chapter 7 bankruptcy. This would prevent losing your home or car and provide assurance that you would be able to pay creditors from you income over time. An individual should have a regular income, secured debt not more than $1,010,650 and unsecured debt not more than $336,900, to be able to pay for his necessities and still sustain required payments.