What Happens When You File for Bankruptcy?
Bankruptcy is probably your last choice in the face of foreclosure and other extreme financial woes. After trying everything else, bankruptcy is the only legal process to relieve you from your extreme debt and help you move toward a better financial future. This does not mean that the bankruptcy process is easy. When you file, you must explain to the bankruptcy trustee or the judge how you came into this financial situation and why it can only be remedied by filing for bankruptcy. Then the court will require you to hand in a list of all your debts and assets so they can determine how to handle your bankruptcy estate.
Before contacting a bankruptcy lawyer for assistance with this process, you may first want to know what to expect from the bankruptcy process.
Asset Division and Debt Classification:
The two categories that your assets will be placed in are:
- Exempt Assets: These assets will not be used to pay off your outstanding debt. Some assets that may qualify are personal items and some equity in your home and/or car.
- Non-Exempt Assets: These assets are applied towards your debt and will be seized to pay off your accounts. Any real estate property besides your home, any recreational motor vehicles, and other items may be subject to seizure.
Your debts are also divided into two groups:
- Secured Debts: Loans are included when the creditor still has security interest in the property that was originally provided as collateral for the loan. This applies to second homes, recreational vehicles, cars, and other similar purchases.
- Unsecured Debts: These debts do not deal with property, this is usually the debt associated with credit cards, personal loans, medical bills, etc.
The non-payment of secured debt may result in the creditor claiming collateral property, which makes it especially important in bankruptcy court.
After all the required information gets filed in court, your bankruptcy estate is assigned a trustee to pay off your secured debt in the allotted time period. In order for the trustee to do this, the court places a “stay” on creditors preventing them from foreclosing or confiscating any of your property. They are also not allowed to file a lawsuit against you for your outstanding balance.
What Chapter Should You File For?
- Chapter 7 Bankruptcy: This chapter is typically chosen by low income earners with few assets. This option allows you to liquidate, keep exempted assets, and discharge unsecured debts. Non-exempt assets are put towards payment of your debts, but student loans, taxes and unpaid child support are not dissolved.\
- Chapter 13 Bankruptcy: Individuals who prefer keeping their non-exempt property will choose this option, or they are trying to get more time to fight foreclosures. Chapter 13 reorganizes your debt and creates a payment plan that takes about three to five years to pay off your debt. Your trustee will collect your payments and pass them along to your creditors. Now you may keep your property without fearing foreclosure or seizure.
What Happens When You File for Bankruptcy? Call Us for More Info
If you are unsure about bankruptcy as a viable solution for your debt, call a bankruptcy lawyer Arlington, TX families trust from Brandy Austin Law Firm, PLLC to discuss whether bankruptcy is right for your situation.