Lines of credit available to Americans offer a financial freedom that most people in other parts of the world will never experience. However, with this benefit comes the obligation to repay the money loaned according to the terms of the contract between the lender and recipient. When the amount of outstanding unpaid debt overwhelms a person’s ability to meet these obligations, bankruptcy may be the right move to regain financial equilibrium. There are several types, or chapters, of bankruptcy a debtor may choose to access, but the most common is Chapter 7, which is referred to as consumer bankruptcy in the industry because it principally serves to eliminate consumer-based debt, i.e., credit cards, medical bills, and the like. Bankruptcy is a big commitment, and choosing the right version is key to getting the relief a debtor needs to move forward.
One group of Americans who have been particularly affected by high levels of debt are seniors, who find themselves declaring bankruptcy after medical bills and lost retirement savings in the recession of 2008 leaves them with no safety net. Recovering from bankruptcy takes time, and with limited employment opportunities as an older American, seniors are at a disadvantage. This challenge does not mean bankruptcy is out of the question, but it may be a decision that should come sooner for older Americans, before the mountain of debt is too high. Regardless of age, though, determining which type of bankruptcy is best is the central question, and a discussion of how to evaluate whether Chapter 7 is right path will follow below.
The Ability to Repay
Chapter 7 is a liquidation process, meaning that if any non-exempt property is available, the bankruptcy trustee is authorized to take possession and sell it for the benefit of creditors. Thus, one of the first questions a potential bankruptcy filer should ask is whether he/she is judgment proof, i.e., does an individual primarily own property exempt from bankruptcy or have insufficient resources to repay. In this situation, the debtor is essentially insolvent, and bankruptcy may make no real difference. If, on the other hand, the debtor has valuable property, such as a home, expensive car, etc., creditors will pursue these assets, and bankruptcy may be necessary to prevent them from a forced sale to satisfy a judgment.
This possibility brings up the next issue – the type of property owned by the debtor. Only non-exempt property is subject to liquidation in bankruptcy, and each state allows certain assets to be excluded from this process as exempt property. Determining if one’s property is mainly exempt or non-exempt, and thus, will likely be lost in a Chapter 7 bankruptcy, will go a long way toward making a decision.
The Type of Debt Owed
Another major issue is whether Chapter 7 will discharge enough debt to justify the process. Certain obligations are not dischargeable in bankruptcy, and if they form the bulk of a person’s debt, bankruptcy will not make a demonstrable difference. These non-dischargeable debts include:
- Child support and alimony;
- Student loans, with limited exceptions;
- Income tax debt;
- Judgments in car accident injury lawsuits involving intoxicated driving; and
- Criminal fines or restitution.
Furthermore, it is important to note that Chapter 7 may delay, but ultimately will not stop, foreclosure of a home or repossession of a car. Secured lenders, because of the collateral involved, are permitted to retake this property, regardless of bankruptcy, unless another payment structure is negotiated.
Talk to a Bankruptcy Attorney
Bankruptcy can provide the financial relief you are seeking, but it requires sufficient consideration and strategy to choose the right approach. Christopher L. Arrington, P.C. has extensive experience helping clients obtain Chapter 7 discharge, and is available to evaluate the circumstances of your case. Do not make this crucial decision blindly, contact the Danville law firm to schedule an appointment.