By Dennis L. Plank, Attorney
Bankruptcy can effectively manage some types of debt, but it’s not suitable for everyone. Many people are confused about what bankruptcy covers, who should file for Chapter 7, and who should file for Chapter 13. However, few people can “choose” which type of bankruptcy to file. Instead, the law determines which type of bankruptcy is most appropriate based on the type of debt incurred, the size of the debt, and the value of the assets involved.
Chapter 7 is considered a liquidation bankruptcy. Although most Chapter 7 cases do not result in selling property, some non-essential possessions may be sold, and the proceeds are used to pay down money owed. Chapter 7 is often a good choice for people with unsecured debt, such as credit card debt. The court helps filers pay off or forgive financial commitments. The process can take three to five months.
Chapter 13 is a reorganization bankruptcy. It allows filers to follow a plan to pay off some or all debt. It’s often a good choice for people with secured debt such as mortgage or vehicle loans. Chapter 13 is often the choice of homeowners because it can stop foreclosures. Filers commit to a court-mandated repayment plan, usually implemented by a third party, such as a lawyer. Such payment plans are typically completed in three to five years.
Who Qualifies?
Not everyone qualifies for bankruptcy. People with enough non-essential assets to pay off debt may not be eligible. Talk with a bankruptcy attorney to determine eligibility.
Can Bankruptcy Eliminate Tax Debt?
Bankruptcy does not eliminate tax debt but can help debtors create a manageable plan to pay overdue taxes. There are some circumstances, however, in which the bankruptcy court may discharge tax-related debts, but those circumstances only apply to income taxes. Consult a bankruptcy attorney for more details.
Do Filers Have to Pay Alimony and Child Support?
Even when filing for bankruptcy, debtors must continue to pay alimony and child support. However, these payments will be considered when evaluating other debt and creating manageable repayment plans.
Can Filers Eliminate Student Loan Debt?
Neither Chapter 7 nor Chapter 13 allows for the forgiveness or renegotiated payment of student loan debt. However, there are rare exceptions. In unusual cases, a bankruptcy lawyer may file a separate action that proves repayment will cause undue hardship. The court must then decide if the request is granted.
When Does Bankruptcy Require the Sale of Major Assets?
If a debtor can provide enough income to clear their debt by selling non-essential assets, it is better to settle those debts than to declare bankruptcy. However, if the sale of nonessential assets won’t eliminate debt, Chapter 13 may be a better option.
In Chapter 13, the filer works with the courts to create a repayment plan for their debts that safeguards essential assets from repossession or foreclosure. The court may require the filer to sell non-essential assets, such as non-essential cars or trucks, recreational vehicles such as boats or RVs, or additional residences, such as a vacation home. A Lancaster bankruptcy lawyer can help determine which assets are protected and which assets may be sold.
Will Bankruptcy Eliminate the Danger of Losing a Lancaster County Home to Foreclosure?
Pennsylvania has bankruptcy exemptions that allow for the protection of certain assets, including a primary home and primary vehicle. Once bankruptcy is filed, foreclosure procedures are stopped as the debtor works with the courts to reorganize debt.
Will Bankruptcy Stop Collection Calls?
The short answer is “yes.” Once a Lancaster County bankruptcy lawyer files, they can activate an automatic stay that stops collections and prohibits collectors from pursuing any collection activity, including telephone calls, attachments, and the filing of lawsuits.
Will Retirement Funds be Liquidated to Pay Off Debt?
Filing for bankruptcy is one way to protect retirement funds. Bankruptcy does not require filers to access retirement funds as part of repayment plans.
Want to Know More?
Every case is different. Contact Going and Plank to get a free consultation and determine if bankruptcy is the right choice. Our team will ask questions to determine if you qualify and help you decide which type of bankruptcy makes the most sense for your situation.
Want to learn more about bankruptcy? Check out these articles.
Who can Declare Bankruptcy? Take the Quiz.
Chapter 7 and Chapter 13 Overview for Homeowners
Learn Why Some Lancaster County Residents are Filing for Bankruptcy
