Bankruptcy can provide a solution for dealing with debt in many different situations. It is a viable form of debt relief that thousands of people seek each year. Each situation is unique and should be evaluated on a case-by-case basis. Bankruptcy is not for everyone. In deciding if bankruptcy might be the best option for you, consider the advantages and disadvantages. These considerations may not affect every person who is considering bankruptcy. Your Minneapolis bankruptcy lawyer can help you better understand whether filing bankruptcy is the best decision for you.
Advantages in Filing for Bankruptcy
Automatic stay protection
One of the immediate advantages to filing bankruptcy is the protection of the automatic stay. The automatic stay puts a stop to creditors’ collection efforts during the pendency of your bankruptcy. The stay allows the Bankruptcy Court to prevent creditors from trying to claim your assets while the case is pending. The automatic stay can be used to temporarily stop foreclosure actions and garnishments. This delay may provide enough time for you to get your affairs in order and get back on your feet.
Discharge from eligible debts
The main reason that most individuals file for bankruptcy is to eliminate unsecured debts. Once the discharge is received, the debtor no longer owes these debts. The discharge legally releases the debtor from the legal obligation to pay these debts and also the ability to be sued or garnished. Some categories of debts cannot be discharged.
Fresh-start and regaining control
After discharge, you may have a renewed sense of financial breathing room. With the debt gone, you have the opportunity to make a fresh start. Furthermore, you can no longer be harassed by creditors or feel the threat of being sued. You can now begin the process of financial planning, rebuilding credit and goal setting.
Keep all or most of your property
What property you get to keep in a bankruptcy filing varies from state to state. The good news is that bankruptcy exemptions (state and federal laws that specify property that cannot be taken by creditors to satisfy debts) allow most debtors to go through bankruptcy without losing any of their property.
Qualified retirement plans are protected
Under the Bankruptcy Code, most pension plans, 401(k) s, and IRAs are protected under a bankruptcy filing. Non-ERISA based plans may not be protectable, depending on their value.
Disadvantages in Filing for Bankruptcy
Does not automatically remove property liens
A bankruptcy discharge does not automatically eliminate liens on your property. In some instances, you may be able to remove judicial liens or non-purchase liens on certain assets like tools of your trade, clothing, and household goods and furnishings. Also, bankruptcy will not allow you to remove statutory liens, such as tax liens, a mortgage on your house, or a car lien. If you want to keep a house or car that has a loan, you will have to continue making payments and determine if the lender will allow it.
Stays on credit report up to 10 years
A bankruptcy filing can stay on your credit report for up to 10 years from the filing date. However, an individual can take steps to lessen the effect in as little as one to two years. Many creditors use the bankruptcy filing as only one factor in their decision making process. You may qualify for car loans, credit and even a mortgage before the 10-year period is up. But, there is no way to officially remove the actual filing from your credit report.
May not get to keep all your property
There are limitations (called exemptions) on the amount and value of property you can keep, especially in Chapter 7. Your Minneapolis bankruptcy lawyer can give you the tools and resources to determine if you can keep all your property in the event you file for bankruptcy. The exemptions vary widely from state to state and even if you move, your old state’s exemptions apply for a period of time, regardless of where you currently reside.
Certain banks have their own rules for secured property
Even if your property is exempt, if you have a secured loan with a particular bank and want to keep the property, the bank has the final say. For example, if you want to keep a car with a loan balance after bankruptcy but do not want to reaffirm the debt (i.e., promise to repay the debt and to be liable for it), the bank will decide if it will agree to those terms. In particular, credit unions loans and car loans should receive special consideration before you decide to file. Your Minneapolis bankruptcy lawyer can help you better understand how particular banks might handle your situation.
Not all debts discharged
A bankruptcy discharge has many advantages and can eliminate significant amounts of debt. However, bankruptcy does not wipe the slate clean of all types of debt. Debts that are not discharged include student loans, debts associated with drunk driving judgements, past-due child support and/or alimony, divorce settlements, fraud, and income taxes (although some taxes may be dischargeable).
Personal bankruptcy for small business owners or shareholders of a business requires careful evaluation and special consideration. It is important to consult with your bankruptcy attorney before filing any court paperwork. Each situation is unique. Whether a bankruptcy will affect the business depends on the status of the business itself and its debts.
The Bankruptcy Code provides special rules about inheriting property or money. These rules can extend well beyond your case file date. If you receive an inheritance after filing bankruptcy, the bankruptcy trustee may be able to take it to pay your creditors. Whether your inheritance is safe depends on the date you became entitled to receive the inheritance and whether the money is exempt.
If you and your attorney determine that bankruptcy might not be the best course of action for you, there are alternatives you might consider. These might include debt settlement, liquidating assets or working to change your personal situation.
Contact Our Minneapolis Bankruptcy Lawyer
Whether you should file for bankruptcy is based on your own personal situation, the types of debts you have and the type and how much property you need to protect. Your bankruptcy attorney can help you evaluate all the advantages, disadvantages and special considerations.
To schedule an appointment with Minneapolis bankruptcy lawyer Gregory J. Wald, call (952) 921-5802.