Bankruptcy for Smart People
By Attorney Ginger B. Kelly, September 13, 2018
For some people, bankruptcy is a very helpful tool. Bankruptcy was intended to help people in debt to recover, get a fresh start and begin again to regain financial stability.
Why File Bankruptcy?
People file for bankruptcy for a variety of reasons. Some want to save their homes from foreclosure. Some want to keep their wages from being garnished. Many want to get rid of (or avoid) liens placed on their homes by creditors. Many are struggling with medical debt, credit card debt and other unsecured loans. Some have financial trouble due to medical issues, loss of employment, divorce, the death of a family member and a host of unforeseen accidents and problems. Sometimes people struggle due to poor judgment or in making unwise financial decisions. Whatever the reason, there are essentially two types of bankruptcies for most individuals and married couples. Most people (not businesses) file under particular bankruptcy Chapters, Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is relatively straightforward and is sometimes called a “straight” bankruptcy. You can file, under Chapter 7, if you are an individual or a married couple but you have to qualify first. To qualify under Chapter 7, income and expenses must meet certain guidelines and the filers must complete a state approved, online or telephonic credit counseling course. A Chapter 7 bankruptcy is often called a liquidation of assets, although very rarely are all the assets of a person or a family actually sold, or liquidated, by the Bankruptcy Trustee. The Trustee is the person working for the US Trustee’s office. The Trustee is the attorney looking out for the creditor’s side, or working on behalf of all the creditors. Most filer’s assets are exempt or protected under state or federal bankruptcy laws. Under Chapter 7, most debts are discharged within about six months from the date of filing, provided there are little or no underlying issues or problems.
Under a Chapter 13, an individual or a married couple must also qualify and take a course before filing, but the difference is that they will need to make payments to creditors into a five or three year repayment plan. During that three or five year plan period, the filer will need to pay a minimum of 10% of all their debt to most creditors, using whatever disposable income that person or couple has. Disposable income is income that is left over after paying all necessary and reasonable expenses, including things like child support, mortgage and auto loan payments. Most Chapter 13 Trustees require that you make payments through a payroll deduction, unless there is some sort of hardship or danger of job loss or some other serious consequence. A Chapter 13 bankruptcy takes longer and during the three or five year period, things may be financially tighter, but most people qualify for bankruptcy under this Chapter.
Chapter 13 also has many advantages over a Chapter 7. For those facing foreclosure or repossession, filing for Chapter 13 bankruptcy can help save a person’s home or vehicle by allowing the individual (or married couple) to catch up on missed payments through the repayment plan. Sometimes a Chapter 13 will allow a debtor to catch up on missed child support payments. Credit bureau scores are not as severely affected compared to a Chapter 7. Also, Chapter 13’s can be filed more frequently, unlike Chapter 7s which cannot be filed less than once every eight years.
Chapter 11 bankruptcies are typically used by businesses, but some individuals and small business owners may file under Chapter 11 as well. A Chapter 11 allows businesses to restructure debts and to pay them back over time. Chapter 11 bankruptcies are very useful for someone who does not qualify for a Chapter 13, although this type of bankruptcy is more complex than a Chapter 7 or 13.
Life after Bankruptcy
Whether it’s Chapter 7 or Chapter 13 you are thinking about, keep this in mind. If you want to file because you’ve had some sort of significant event in your life like an extended period of unemployment or lots of medical bills, bankruptcy is a very effective tool. Bankruptcy may help you catch up or eliminate most of your debt and a great way to reorganize your financial life.
However, if you are experiencing financial hardship because you never learned how to manage money and you tend to spent beyond your means, filing for bankruptcy may not be very helpful. In other words, bankruptcy can get most folks where they want to go, but it won’t keep them financially stable without a little work. Living within your financial means and tackling the reasons why you tend to spend beyond your means is critical for success. Although one in every one hundred people may file for bankruptcy each year, only 8% of those people every file again. This means that most folks figure it out. They regroup and regain sound financial ground. You can too. It’s really quite simple.
Why Smart People File for Bankruptcy
Steve Rhode of the Huffington Post thinks that bankruptcy is not a moral decision, but rather an important strategy for dealing with financial difficulty and getting back on your feet rather quickly. He says that people who file for bankruptcy are smart. I agree. Being honest and upfront, especially about difficult and challenging situations, is the most likely way to reach a positive outcome.
If you have other legal questions, especially if you are contemplating bankruptcy or dealing with collections or debt collection law suits, Attorney Ginger Kelly is now accepting clients in the Dudley, Webster, Sturbridge, Fiskdale, Southbridge, Saundersdale, Oxford, North Oxford, Charlton, Charlton Depot, Auburn, Leicester, Rochdale, Spencer, Brookfield, East Brookfield, West Brookfield, North Brookfield, Warren, Brimfield, Wales, Palmer and Holland. We can explore whether or not bankruptcy is the easy way out for you. Our office is a quiet and comfortable place to talk, and a free pot of coffee will be waiting for you when you arrive.
ABOUT: Attorney Kelly is an attorney in good standing, licensed to practice in both the Federal District and State Courts of Massachusetts and Rhode Island. Her law practice is focused on consumer debt, finance, bankruptcy and District Court matters. Attorney Kelly is experienced in both criminal and civil trial work. On a personal note, Attorney Kelly enjoys writing and other things, like conservation and agriculture. To find out more, visit our website, or call us at (508) 784-1444.
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