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What is Personal Bankruptcy?

Personal bankruptcy is the means by which individuals may have burdensome debts discharged. Depending on the circumstances, a personal bankruptcy may be either a Chapter 7 or Chapter 13 filing. When someone has become overwhelmed with debt, bankruptcy is an option provided under the U.S. Constitution.

What Are the Downsides to Personal Bankruptcy?

Whereas there are benefits to declaring personal bankruptcy, there are also downsides. Without a doubt, bankruptcy will damage credit. A Chapter 7 personal bankruptcy will appear on your credit reports for 10 years. Any personal property that is not exempt will be liquidated (sold) to pay some of the debts. All credit cards will be forfeit. If you do not already have a mortgage, obtaining one after a Chapter 7 bankruptcy will not be likely.

Because you will not have the option to declare bankruptcy for another six years after a Chapter 7 bankruptcy is discharged, you may face severe difficulties for that time frame. You will still have alimony and child support payments and in most cases, student loans will also remain to be paid. If you keep your home and/or automobile, you will still have your mortgage and vehicle payments to make.

What Personal Debts can be Discharged and Which cannot?

 Regardless of whether you file for Chapter 7 or 13, not all debts can be discharged.

Debts which may be discharged include:

  • Credit Card Debt
  • Medical Debt
  • Collections
  • Back rent
  • Repossessions
  • Judgments
  • Utilities
 Debts which may not be discharged (generally) include:
  • Alimony
  • Child Support
  • Back Taxes
  • Student Loans
  • Criminal fines
  • Restitution rulings

Of course, there is some flexibility to debts which generally cannot be discharged. For instance, it is an Urban Legend that student loans cannot be discharged. In some cases, they may. If the student loan debt can be demonstrated to be a serious burden even with the discharging of all other debt, then there is the possibility of elimination. This is rare, but does happen.

In addition, Federal Bankruptcy Judges have considerable latitude in determining what is to be eliminated and what is not. If you have liquid assets (money) and file Chapter 7, the Court can force Chapter 13 instead. Chapter 13 allows for careful debt restructuring. The judge considers each case individually and generally attempts to resolve the debt problem in whatever way is best for the individual involved.

Are There Alternatives to Filing Personal Bankruptcy?

 There are almost always alternatives to filing personal bankruptcy. We will explore all options including…
  • debt settlement – often, a creditor will accept a partial payment in lieu of nothing.
  • defense litigation – if you are being sued, we can intercede on your behalf.
  • debt negotiation – we can also negotiate better debt repayment schedules for you.
  • asset protection – if there are assets you need protected, we can advise you on the best way to legally protect these.
  • and more

We have been helping our neighbors with personal bankruptcies. We know what the courts look for and how the U.S. Bankruptcy system works.

What Else Should I Know if Filing for Personal Bankruptcy?

 If you are planning to file personal bankruptcy, whether Chapter 7 or Chapter 13, there are some important steps to take now. Some of these include:
  • Stop applying for more debt immediately.
  • Don’t give property away.
  • Don’t make “preference payments.” Don’t choose to pay family members over other creditors because this will cast aspersions on your character in court.
  • Don’t write bad checks.
  • Stop using credit cards and other lines of credit.
  • Carefully consider your financial goals once your personal bankruptcy is discharged. It is going to be a long time before you can obtain credit again. Thus, you will need to learn to live on what you earn. As mentioned, you will need to attend classes, but you should get a head start.
  • Finally, you need to know how to get in touch with the best bankruptcy lawyer.
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