By Dennis L. Plank, Attorney
Debt is a difficult burden to bear. For homeowners especially, debt can spiral out of control unexpectedly. And when the roof over one’s head is at stake, the stress of snowballing debt can be overwhelming.
In these cases, bankruptcy may be the best available option. The two primary forms of bankruptcy available for homeowners in Lancaster County are Chapter 7 and Chapter 13. These options can provide serious relief from the heavy weight of debt and forge a path to a better financial future. However, Chapter 7 bankruptcy and Chapter 13 bankruptcy differ in key ways. Chapter 7 is based on forgiving debt, whereas Chapter 13 is geared toward consolidating, reorganizing, and paying off debt.
Under Pennsylvania law, there are significant consequences that Lancaster residents should be aware of before making this weighty decision. Those considering bankruptcy of any kind should consult a Pennsylvania bankruptcy attorney before making this life-changing choice. A qualified lawyer will be able to examine their client’s finances, review their income, and analyze the kind of debt they owe. A legal consultation can provide valuable context to help Pennsylvania homeowners make an informed decision.
What is the Best Option When a Home is at Risk of Foreclosure?
When a homeowner’s debt has become severe enough to threaten the roof over their head and an impending foreclosure looms, bankruptcy may be a wise choice. Whether the filer chooses Chapter 7 or Chapter 13, beginning the process allows a lawyer to immediately put all foreclosure proceedings on hold.
Chapter 7 bankruptcy requires the liquidation of many assets, but fortunately for homeowners, Pennsylvania has exemptions that protect some assets such as a primary home and primary vehicle. And although Chapter 7 bankruptcy will not help with secured debt tied to assets like mortgages, Chapter 13 bankruptcy can. By reorganizing debt and negotiating a three- to five-year payment plan based on their income, those filing for Chapter 13 can end up paying a fraction of what they originally owe before declaring bankruptcy.
What is the Impact on Major Assets?
When someone filing for bankruptcy has significant assets outside a primary home, Chapter 13 may be a better choice than Chapter 7. When the person who owes the debt has saleable assets that can provide enough money to clear the debt in question, paying off money owed is almost always a better option than declaring bankruptcy. Saleable assets may include boats, extra vehicles, vacation homes, rental properties, high-value works of art, valuable jewelry, and similar possessions. Even if the sale of these assets will not settle the debt, they can be liquidated as part of a bankruptcy filing–especially as part of Chapter 13, which focuses on repaying the debt after negotiating a payment plan.
People considering their debt options should consult with a Lancaster bankruptcy attorney to determine which assets they can keep and which should be sold.
How Does Income Affect Declaring Bankruptcy?
For those that earn below the median income of Pennsylvania ($57,919 for individuals and $105,138 for a 4-person household as of April 2021), bankruptcy may be a good option. Still, it comes with a major caveat: Bankruptcy law requires that individuals pass a means test to qualify and prove that their income is below a certain level set by the state, which varies based on factors such as the size of the household.
Passing this means test may seem simple, but many bureaucratic considerations are easily missed. A qualified Pennsylvania bankruptcy lawyer can help filers complete the means testing process and ensure that filers meet the requirements to get approved for Chapter 7 or Chapter 13 bankruptcy.
However, passing the means test is only the first step. Applicants also need to establish legally recognized Pennsylvania residency. They must also complete credit counseling to confirm that claiming bankruptcy is the right option for their financial situation.
What is the Impact on Debt Collector Threats?
If debt collectors are calling and threatening wage garnishment or lawsuits, bankruptcy may be the best course of action. This is truer when there is little possibility of an improved financial situation in the near future. A Lancaster bankruptcy lawyer can file on a Pennsylvania resident’s behalf, which can, in turn, automatically order the stoppage of collections. It also prohibits debt collectors from pursuing any collection activity– especially threats, harassing telephone calls, and filing lawsuits.
Can Bankruptcy Help Protect Retirement Assets?
Many Pennsylvania homeowners work hard to build a nest egg and secure a sound financial future for themselves. Owning a home is only one part of those efforts. Building up savings for their retirement is another critical component. However, when people begin paying off debt with their retirement assets, there are a couple of significant drawbacks that might make bankruptcy a better option. First, people who draw on their retirement funds too early can face heavy penalties or taxation on withdrawals. Secondly, early withdrawals can erode the retirement nest egg, creating more financial hardship in the future. Filing for bankruptcy does not just save people from cutting into their retirement assets, which are protected in a bankruptcy, but it can also help protect those retirement funds from creditors in the long term.
Build a Better Financial Future Today
Declaring bankruptcy is a big decision. However, experienced Lancaster bankruptcy lawyers know which questions to ask to determine if it is the best option and, if it is, which type works best for each debtor’s financial situation. For Pennsylvania residents struggling with debt, contacting the Law Offices of Going and Plank and reviewing debt relief options can be a way out. Contact Going and Plank today and take the first steps down a path to a better financial future.
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