Debt Management

 

 

Bankruptcy 101

**Note: This is not legal advice. For legal advice, contact an attorney or a legal entity.

If debt consolidation options are not viable, you may have to consider your legal options. Bankruptcy is the ability to discharge debts or restructure debt repayment through the federal court system. People with overwhelming personal debt generally consider a Chapter 7 or Chapter 13 bankruptcy. Some businesses consider these as well. Debts that can be restructured or eliminated through bankruptcy include unsecured debts such as medical bills, credit card obligations, and other unsecured debts. However, don’t expect to be absolved of the responsibility of paying most tax obligations, secured loans (such as car payments), court ordered child support, alimony and student loans.

A chapter 7 bankruptcy may include court ordered property liquidation that is overseen by a court appointed trustee. Revenue generated from selling some of your assets may be used to reduce your debt obligation. However, some of your property will be classified as exempt and not subject to potential liquidation. For example, your primary car and primary residence may be considered exempt assets as well as other belongings. Expect that you will have to prove that your debt obligations far out weigh your ability to repay them. Otherwise, you may not be given the option to file this type of bankruptcy and you may be directed to file for a chapter 13.

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A chapter 13 bankruptcy, often called a wage earner bankruptcy, is based on a court approved repayment plan that tailored to fit your income. The duration of the plan is generally 3 to 5 years. A court appointed trustee will collect your payments and pay your creditors on your behalf. You may be able to avoid foreclosure and repossession. Debt limits for this type of bankruptcy are not to exceed $1,010,650 in secured debt and $336,900 in unsecured debt (April 2009; seek counsel from a lawyer or legal entity for the most recent debt limits).

A bankruptcy may be reflected on your credit reports for up to 10 years and affect your credit score, unsecured credit approval and potential job opportunities.