Bankruptcy is often touted as the best way to get rid of debt when you have no hope of paying all your bills off. Chapter 7 is particularly popular because you do not have to pay back your creditors. However, you should take this route with caution since there are some drawbacks, aside from the major hit your credit score will take. Find out some of the disadvantages of this option. You might find that other chapters, or other ways of reducing debt, will work better for you.
If you have few assets to lose, then you are usually encouraged to declare chapter 7. This is because you will likely not be allowed to keep much when you take this route. You might be able to keep your primary residence, unless you have a lot of equity in it. If you have a lot of it paid off, the trustee may decide to sell it to pay some of your creditors. You should also find out what the homestead exemption is for your state, as some areas allow you to keep your whole home, while others only allow you to keep a small portion of its value. In addition, you will probably be able to keep one car, though if it is a luxury vehicle, you may have to sell it and buy a cheaper car so your creditors get more of your money. Talk to your lawyer before filing for bankruptcy to ensure you do not have too many assets to lose for this to be a worthwhile route.
You should also know that your income must be low enough to qualify for chapter 7 if you plan on filing. You first have to compare your income to the median income for your state. If it is lower than the median, you can choose this option, but if it is higher, you must pass the means test. This requires you to add up your income and then deduct most of your expenses, as this will determine how much you have leftover. If the court believes you have enough left to pay back some creditors, you will have to file for chapter 13 instead. Thus, you need to make sure you do not make too much if you want to avoid making a repayment plan for creditors.
If you wish to declare chapter 7 to get out of paying back taxes, child support, alimony, or student loans, you may be disappointed to find that this is not usually possible. These debts are all exempt from bankruptcy, meaning you cannot include them. You can still declare bankruptcy to get rid of all your other debts, but you will have to pay back any taxes from the last three years. You also have to pay student loans, alimony, and child support unless you can prove that it would be a huge hardship for you, such as due to disability or complete inability to bring in any income.
Clearly it is worth talking to a lawyer before planning on filing. Not everyone is eligible for this route, nor is it the best option for everyone.
If you have few assets to lose, then you are usually encouraged to declare chapter 7. This is because you will likely not be allowed to keep much when you take this route. You might be able to keep your primary residence, unless you have a lot of equity in it. If you have a lot of it paid off, the trustee may decide to sell it to pay some of your creditors. You should also find out what the homestead exemption is for your state, as some areas allow you to keep your whole home, while others only allow you to keep a small portion of its value. In addition, you will probably be able to keep one car, though if it is a luxury vehicle, you may have to sell it and buy a cheaper car so your creditors get more of your money. Talk to your lawyer before filing for bankruptcy to ensure you do not have too many assets to lose for this to be a worthwhile route.
You should also know that your income must be low enough to qualify for chapter 7 if you plan on filing. You first have to compare your income to the median income for your state. If it is lower than the median, you can choose this option, but if it is higher, you must pass the means test. This requires you to add up your income and then deduct most of your expenses, as this will determine how much you have leftover. If the court believes you have enough left to pay back some creditors, you will have to file for chapter 13 instead. Thus, you need to make sure you do not make too much if you want to avoid making a repayment plan for creditors.
If you wish to declare chapter 7 to get out of paying back taxes, child support, alimony, or student loans, you may be disappointed to find that this is not usually possible. These debts are all exempt from bankruptcy, meaning you cannot include them. You can still declare bankruptcy to get rid of all your other debts, but you will have to pay back any taxes from the last three years. You also have to pay student loans, alimony, and child support unless you can prove that it would be a huge hardship for you, such as due to disability or complete inability to bring in any income.
Clearly it is worth talking to a lawyer before planning on filing. Not everyone is eligible for this route, nor is it the best option for everyone.
When it comes to individuals seeking to file Chapter 7 Long Branch legal professionals are happy to advise you on the pros and cons of this decision and its impact on your financial future. Learn more at http://www.adamschneiderlaw.com/.
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