Protecting Your Assets in Bankruptcy: What’s Exempt and What’s Not

Filing for bankruptcy is a big step, and it’s something that intimidates many people. There’s a common misconception that going through the bankruptcy process will leave you penniless because it will require you to surrender all of your material possessions to satisfy creditors. Depending on the type of bankruptcy you file and where you live, you can protect many of your assets by taking advantage of different bankruptcy exemptions. 

What Are Bankruptcy Exemptions?

When people file for bankruptcy, they still need to be able to function in society, meaning they have a place to live and a means to get to and from work. Bankruptcy exemptions are federal and state laws that allow people to protect certain essential property during the bankruptcy process. In other words, property that is “exempt” can’t be seized by the bankruptcy trustee to satisfy creditors. 

The kind of property and amount of property you can claim as exempt varies from state to state. Some states are incredibly generous with exemptions, while others are not. Federal law also provides a list of exemptions, but most states will require that you use state-specific exemptions. 

Assets Exempt Through Chapter 7 Bankruptcy

Also referred to as liquidation bankruptcy, Chapter 7 bankruptcy forgives most, if not all, of your unsecured debt after the bankruptcy trustee liquidates your assets to repay creditors. While this sounds scary, there are exceptions to what becomes part of the bankruptcy estate. For example, the trustee can sell your non-exempt property to satisfy creditors, but they can’t touch your exempt property.

The federal system and most state bankruptcy systems will allow you to keep a portion of the equity in your primary home, vehicle, and personal property. Some states even offer an unlimited homestead exemption, which allows you to keep a home no matter what it’s worth. Usually, clothing and household goods are exempt unless they are worth a significant amount of money. 

Assets Exempt Through Chapter 13 Bankruptcy

If you own many assets that you don’t want to risk losing through the bankruptcy process, Chapter 13 might be a better option. This type of bankruptcy allows you to keep all of your assets. Chapter 13 requires that you participate in a three—to five-year debt repayment plan. If you successfully complete the terms of your plan, any leftover debt will be forgiven at the end. 

The exemptions available for Chapter 13 are the same as those for Chapter 7, but they are used differently. Specifically, you wouldn’t need the exemptions to prevent you from losing property. However, they would play a role in determining how much your monthly payment would be under the debt reorganization plan. 

Assets That Are and Aren’t Exempt from Bankruptcy

You’ll want to get a good idea of what assets are exempt and which ones may be in jeopardy before you file personal bankruptcy. This can help guide your choice between Chapter 7 and Chapter 13 bankruptcy. 

Exempt Assets in Bankruptcy

These are items you can generally keep:

  • Your primary home
  • Your car, up to a specific value
  • Reasonably necessary clothing
  • Reasonably necessary household items
  • Jewelry up to a specific value
  • Child support and alimony
  • Retirement accounts
  • Life insurance policies
  • Pensions
  • Tools required for a trade
  • Public benefits
  • Personal injury awards

Non-Exempt Assets in Bankruptcy

These are items you will often have to give up:

  • A vacation or second home
  • A second vehicle
  • Recreational vehicles
  • Luxury clothing
  • Stamps, coins, or other valuable collectibles
  • Stocks, bonds, cash, or other investments
  • Expensive instruments
  • Family heirlooms

Types of Bankruptcy Exemptions

Some states require that you use their exemptions, while others allow you to choose between state and federal exemptions. Here are a few examples of exemption types, depending on where you live:

  • Homestead Exemption — This exemption helps protect your home during Chapter 7 bankruptcy and can reduce your payments through Chapter 13 bankruptcy.
  • Motor Vehicle Exemption — This exemption allows you to keep your primary vehicle or some of its equity, which is the difference between the amount you owe and its fair market value.
  • Wildcard Exemption — Some states allow a wildcard exemption, which can be applied to personal assets. The amount varies. 

Protect Your Assets During Bankruptcy

If you decide that bankruptcy is right for your situation, you want to make the most of your federal and state exemptions. The best way to accomplish this is to work with a knowledgeable financial or legal professional who can guide your choices and explain your options. Gulf Coast Bankruptcy is dedicated to helping those seeking assistance with financial struggles get the information they need to make informed decisions about their financial future. 

Bankruptcy for Veterans: Legal Support and Financial Solutions

Our country owes every veteran an unrepayable debt of gratitude. Serving in the United States Armed Forces is a brave and noble choice. Unfortunately, veterans may face financial difficulties just like anyone else. If this is your situation, you may be wondering about your options for debt relief, including bankruptcy. 

Financial Risks Faced by Veterans

There are an estimated 17.9 million veterans in the United States, making up about 6.8% of the adult population. According to a 2021 study by the Military Family Advisory Network, nearly 40% of veterans admit they have less than $500 in emergency savings or no money saved at all. And more than 80% of veterans surveyed indicated they felt stress over the past year due to their finances. 

It only takes a single unplanned medical emergency, vehicle breakdown, or home repair to create a financial hardship that is difficult to recover from. Many veterans suffer from service-related disabilities and face challenges in receiving adequate financial support. While federal law entitles veterans to many valuable benefits, they may not be enough to deal with severe financial hardship. 

Is Bankruptcy for Veterans the Answer?

Bankruptcy is only one option when you are facing unmanageable debt. If you are a current servicemember, the Servicemember Civil Relief Act (SCRA) is a federal law meant to ease financial burdens in many ways. For example, the law allows you to limit interest rates, delay payments, and prevent repossession under certain circumstances. 

Other options include using a VA Cash-Out Refinance Loan to get funds from your home’s equity and pursuing credit counseling. If these aren’t available to you and you are being harassed by creditors, it may be wise to consider your bankruptcy options. 

Bankruptcy Options for Veterans

Veterans have the same bankruptcy options as non-veterans. However, they also have a few additional advantages thanks to their status. If you are filing for personal bankruptcy, you can file either a Chapter 7 or Chapter 13 bankruptcy. There is no special bankruptcy class for military members. Here is what you need to know about each type and how your veteran’s status might impact your personal bankruptcy. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the simplest and quickest form of bankruptcy for individuals. It can erase most of your unsecured debts, also allowing you to keep personal belongings and other property up to a certain amount.

Most people who file for Chapter 7 bankruptcy have to pass a “means test” to qualify. However, certain veterans are exempt from taking this means test. You would automatically qualify for Chapter 7 bankruptcy if you:

  • Are a disabled veteran with a 30% or higher rating
  • File within 18 months of leaving active duty
  • Are continuing to serve in the reserves

Chapter 13 Bankruptcy

If you cannot qualify for a Chapter 7 bankruptcy because of the means test or have other assets you wish to hold onto, you might consider filing for Chapter 13 bankruptcy. This is a “repayment bankruptcy,” which requires that you make a single reduced payment to your creditors over a period of 3-5 years. Once you complete this program, the remainder of your unsecured debts are forgiven. 

HAVEN Act Benefits for Veterans in Bankruptcy

The Honoring American Veterans in Extreme Need Act of 2019, also known as the HAVEN Act, addresses how veterans’ benefits are included in calculating income for the purposes of bankruptcy. Prior to the passage of this law, veterans were required to include certain benefits as disposable income, which resulted in many not being able to pass a means test.

The HAVEN Act protects various veterans’ benefits from income calculations related to personal bankruptcy. Among the benefits protected include:

  • VA Veterans Pension
  • VA Veterans Disability Compensation
  • Combat-Related Special Compensation
  • Special Survivor Indemnity Allowance
  • VA Dependency and Indemnity Compensation
  • Survivor Benefit Plan for Chapter 61 Retirees

Benefits of Bankruptcy for Veterans

If you are dealing with crushing debt and don’t see another way forward, it may make sense to pursue personal bankruptcy. One of the benefits of filing for bankruptcy is that it gives you instant relief from debt collectors. As soon as you file, you get an “automatic stay,” which prevents debt collectors from any further contact, such as making harassing phone calls. They will also be prevented from any wage garnishment or repossession actions. 

Another benefit of bankruptcy is that it gives you a fresh financial start. Whether you choose Chapter 7 or Chapter 13 bankruptcy, all or some of your unsecured debt will be erased. This will give you the breathing room you need to move forward with confidence. 

Bankruptcy is one of the many debt relief options available to veterans who are facing unmanageable debt. But it’s not right for everyone or something you want to jump into without a full understanding of the facts. An experienced bankruptcy attorney can review your situation, explain your options, and guide you through the bankruptcy process if you decide it is right for you. 

Bankruptcy and Medical Bills: Managing Healthcare Debt in Tough Times

Medical debt affects nearly everyone, but it can be especially burdensome for those with chronic illnesses that require long-term hospitalization and time away from work. According to the Consumer Financial Protection Bureau (CFPB), Americans had amassed $88 billion in medical debt as of mid-2021, a figure reflected on credit report data. 

Although most medical debt collection items are around $500, many consumers have multiple such items on their credit reports. In fact, past-due medical debt is the leading cause of personal bankruptcy. 

If you are experiencing crushing medical debt, you may also be wondering if there is a solution. For example, can you get rid of your debt by filing for personal bankruptcy? This is one option that many people pursue. 

The Impact of Medical Debt on Households and the Economy

According to a Kaiser Family Foundation (KFF) analysis, medical debt is a consistent problem despite more than 90% of the U.S. population having some form of health insurance. For individuals with limited means, even a small medical expense or emergency can be unaffordable. And people with significant expenses are likely to build up major debt over time. 

A KFF survey revealed that people with medical debt often cut spending on other items like food and clothing or depleted their savings to pay mounting medical bills. This is not only a personal hardship but also a societal harm. When individuals and families can’t afford the necessities due to medical debt, they also won’t spend money on other things like eating out, vacations, or buying a home. 

Using Personal Bankruptcy to Wipe Out Medical Debt

It’s not uncommon for people to file for personal bankruptcy when they are struggling to pay medical bills. A bankruptcy will eliminate debts from hospitals, doctors, ambulances, pharmacies, and other medical providers. It will also address other qualifying debts like personal loans, credit cards, utility bills, leases, and more. 

Unsecured Debt in Bankruptcy

When you file for bankruptcy, the distinction between secured and unsecured debt is important. Secured debt is anything backed by collateral, such as a loan on a vehicle or a home mortgage. While bankruptcy can wipe out the debt, the lien usually survives bankruptcy, meaning the lender can repossess a vehicle or foreclose on a home. 

However, medical debt doesn’t have any collateral. Similar to credit cards, it is considered unsecured debt. When this debt is discharged through bankruptcy, it is gone forever. Further, filing for bankruptcy gives you an automatic stay, which means providers and collectors can no longer contact you or pursue collections. 

Medical Bills and Chapter 7 Bankruptcy

Chapter 7 bankruptcy is one type of personal bankruptcy you can use to eliminate medical debt. If you owe a lot of debt, you likely won’t have any problems meeting the means test. You may need to forfeit some non-exempt assets, which the bankruptcy trustee will liquidate to repay the debts. However, many people who file for Chapter 7 bankruptcy are able to hold onto essential assets like their family home and vehicles. Before filing for bankruptcy, it’s important to understand these options and your rights. 

Medical Bills and Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the other option if you are considering personal bankruptcy. This requires that you create a three to five-year debt repayment plan, which would have a single reduced payment that is divided among your creditors. If you successfully complete the repayment plan, the remainder of your debts will be fully discharged. Many people choose Chapter 13 bankruptcy when they can’t meet the Chapter 7 means test or they have non-exempt assets they wish to keep. 

Alternatives to Bankruptcy to Address Medical Debt

Personal bankruptcy isn’t the only option for addressing medical debt and other unsecured debt. Some people choose debt consolidation, which involves taking out a loan with a fixed monthly payment to pay off all of your outstanding debt. But, if the interest rate is higher than what medical providers are charging, this may not make sense. 

In some cases, you can also negotiate directly with a medical provider to settle outstanding debt. These businesses recognize that it’s better to receive some payment than nothing at all. The provider might waive a portion of the debt if you offer to make a reasonable lump sum payment.

Finally, some state lawmakers are also attempting to address the medical debt crisis. For example, at least a dozen U.S. states are considering legislation to create medical debt relief programs or protect personal property from medical debt collectors. 

Bankruptcy is one of the many debt relief options for managing healthcare debt in tough times. But you don’t want to jump into a complex legal process before you understand the facts. A knowledgeable bankruptcy attorney can explain your options and guide you through this process. This will ensure you make sound financial decisions that can carry you through into the future. 

Navigating Bankruptcy as a Small Business Owner: Tips and Legal Insights

If your small business is struggling financially, you may be considering bankruptcy as one of your options. Although this sounds like a dramatic step, it may be one of the best ways for your business to regain its financial footing or for you to get a fresh start as the owner. Here is what you need to know about navigating bankruptcy as a small business owner. 

Understanding Business Bankruptcy — Three Ways to File

Before you do anything, it’s important to understand your options for small business bankruptcy. You essentially have three ways to file. 

Chapter 7

When a corporation, partnership, or LLC decides to close its doors for good and file for bankruptcy, Chapter 7 is generally the type that is chosen. 

When you file for Chapter 7 bankruptcy, the court will assign a trustee to your case. That person will sell your business assets and use the proceeds to pay your creditors. All unsecured debts will be discharged, and creditors will no longer be able to pursue collections. 

Chapter 11

Chapter 11 is also known as “reorganization bankruptcy.” It’s historically been known as a costly and time-consuming option used by large businesses to restructure assets and debts and allow them to continue operations. 

Recently, however, Chapter 11 bankruptcy has become more business-friendly. Congress passed a law making it less time-consuming and expensive for businesses to use this option. 

Chapter 13

Most small businesses choose to use Chapter 13 if they want to continue operations. However, it is only available to sole proprietors. If your business is structured any other way, you will need to investigate using Chapter 7 or Chapter 11 bankruptcy. 

Which Type of Business Bankruptcy is Best for Your Business?

There’s no one-size-fits-all solution when it comes to business bankruptcy. Regulators and lawmakers have created a variety of options so business owners can find the right fit, depending on their circumstances. If you are thinking about small business bankruptcy, here are some of the questions you’ll want to consider:

  • What is your business structure?
  • Do you plan to remain in business?
  • Who is liable for your business debt?

The last question is critical because if the business owner has personally guaranteed any business debt, a business bankruptcy may not offer full protection. The creditor may still try to pursue the owner for collection, or the owner may lose personal assets to satisfy business creditors. 

Navigating the Small Business Bankruptcy Process

If you’ve decided to file for business bankruptcy, you’ll need to go through a specific process. Each type of bankruptcy will require that you complete certain forms and submit some paperwork. 

A bankruptcy petition is an official document that begins the bankruptcy process. It will include information about your debts, assets, finances, and other relevant data. 

Once you file for bankruptcy, this triggers an automatic stay, which prohibits creditors from calling you or otherwise harassing you about unpaid debts. It can also stop any foreclosure proceedings. 

Every business bankruptcy will include a 341 meeting as part of the process. This is a creditor meeting, where your creditors can ask you questions about your finances and business. 

If you file for Chapter 13 bankruptcy, you will also need to create a proposed repayment plan and attend a court hearing where it will be presented and approved. This plan details how you will repay your debts over the specified period, after which any remaining debt will be discharged. 

The business bankruptcy process can be stressful and complex if you aren’t familiar with the steps. An experienced bankruptcy attorney can protect your rights and provide valuable peace of mind. 

What Happens to Your Small Business After Bankruptcy?

That depends. If you filed for Chapter 7 bankruptcy, your business will cease operations. However, Chapter 11 or Chapter 13 bankruptcy are options you can choose if you want to continue to serve customers while you figure out your financial situation. 

It’s essential that you emerge from bankruptcy with a solid financial plan if you wish to remain in business. Without one, there’s a strong chance your business will suffer similar hardships in the future. In addition to sound legal representation, it’s a good idea to speak with a financial consultant who can guide your choices. 

Bottom Line: Business bankruptcy can be complicated, so it’s advisable to consult with a bankruptcy attorney you can trust who will help you get the financial relief you need. Gulf Coast Bankruptcy is dedicated to providing those seeking assistance with financial challenges the information they need to make the most informed decisions about their financial future.

Bankruptcy and Your Business: Options and Strategies

Being a business owner can be a very fulfilling experience. Most business owners have poured hours—if not a lifetime—of hard work, dedication, creativity, and perseverance into their businesses. And so one of the most heartbreaking realizations may be that a business isn’t solvent. Unfortunately, this is a reality that many business owners throughout the United States have come face to face with, particularly in the wake of the pandemic. If your business is drowning in debt and you’re feeling overwhelmed and unsure of your options, it’s important to know that bankruptcy may be a solution to saving your business and getting a clean financial slate. To learn more about options and strategies when it comes to bankruptcy and your business, it’s best to speak to a legal or financial professional (or both!). In the meantime, here are some things to know about bankruptcy and your business—

When Should a Small Business File for Bankruptcy?

Before even thinking about the specifics of your financials when you’re in debt, one of the first questions to ask yourself to help determine whether or not bankruptcy is for you is, “Do I still want to keep this going?” If your heart isn’t in it and you’re ready to move on from the business, then it may be time to wind down operations—working with a lawyer can help. If you do want to keep the business going, then here are some other things that you should be thinking about in considering bankruptcy:

  • Have you considered other options? While bankruptcy can be a positive decision for your business, it’s also a very consequential one. This is why before you decide to file for bankruptcy, you should consider all of your options. Other options for your business might include:
  • Debt negotiation. In some cases, you may be able to work with creditors to negotiate your debt repayment. Creditors want to get paid; if there is any chance of you not repaying your debt, they will do what they can to ensure that they get repaid—even if it’s only a fraction of what they were originally owed. An attorney can lead the negotiation process. 
  • Debt consolidation. Another option for managing your debt is to consolidate your debt. Debt consolidation is the process of merging all of your debt together into one single bill. This can help you to manage interest rates and payments, and may make repaying your debt more feasible. 
  • Refinancing. If you have loans that you’re defaulting on, working directly with the bank to refinance your loan, including a mortgage loan if applicable, is strongly recommended. A bank may be able to adjust your interest rates or loan repayment terms in order to make your monthly payments more affordable. 
  • Are you eligible for bankruptcy? Once you’ve weighed all of the options, another important consideration is whether or not your business is even eligible for bankruptcy. While there are no debt or income requirements or limitations for filing for bankruptcy under Chapter 11, there are such requirements and limitations for filing for other bankruptcy types. Review your options with a professional so you’re clear on what you can and cannot do. 
  • Do you understand the benefits and consequences of bankruptcy? Finally, before you decide to file for bankruptcy, it’s important that you understand all of the benefits and consequences of filing. Bankruptcy can help you to get out of debt, but it will also make it very hard to borrow money for years into the future. 

Bankruptcy Options for Small Businesses 

For small business owners, there are three typical options for filing for bankruptcy; however, which type of bankruptcy you can file for will depend on your business structure, debt level, and income amount. 

  • Chapter 7 bankruptcy. Chapter 7 bankruptcy is for a sole proprietor who meets the means test, which means that they don’t have the income and assets to repay their debts. This type of bankruptcy will erase business and personal debts. 
  • Chapter 13 bankruptcy. A Chapter 13 bankruptcy is similar to a Chapter 7 bankruptcy, except that there is no means test and, because the debtor has a sufficient level of income and assets, they will enter into a repayment plan. This type of bankruptcy is not available for partnership. LLCs, or corporations. 
  • Chapter 11 bankruptcy. Finally, a Chapter 11 bankruptcy is the third option for small business owners and large business owners. This type of bankruptcy can be filed by LLCs, corporations, partnerships, and sole proprietors, although it is rare for sole proprietors to choose this option. In this type of bankruptcy, the debtor’s debts are reorganized, similar to how they are reorganized in a Chapter 13 bankruptcy. 

Learn More Today

If filing for bankruptcy is something you’re thinking about, working with a professional who has experience representing businesses like yours is strongly recommended. Learn as much as you can and seek representation before taking any actions. 

Bankruptcy and Divorce — Navigating the Complexities

It’s not uncommon for divorcing couples to also research their options for debt relief. According to a 2018 survey by Ramsey Solutions, money issues are the top cause of conflicts among spouses. 

But if you’re thinking about filing for both divorce and bankruptcy, it’s important to understand your options. Making the wrong choice or not filing in the correct order could have enormous financial and other negative consequences. On the other hand, there may be benefits to approaching these items a certain way. Here’s what you need to know to navigate these complexities. 

How Different Types of Bankruptcy Impacts a Divorce

When filing for personal bankruptcy, you have two options — Chapter 7 and Chapter 13. Chapter 7 bankruptcy requires that you satisfy a “means test” and will take about 3-4 months to complete. Once done, you can discharge the debts included in the bankruptcy prior to the divorce. 

However, many couples find that their joint income is too high for them to qualify for Chapter 7. In other words, they won’t meet the means test. This type of bankruptcy might also require liquidating some assets to repay debts. 

Chapter 13 is a different type of bankruptcy, which is more of a debt reorganization. You create a repayment plan lasting 3-5 years to repay a portion of your debts. Choosing this option would tie you financially to your spouse for several years to come. 

Ways Bankruptcy and Divorce Courts Handle Property

Addressing your debt situation through bankruptcy can simplify the property division process in a divorce. However, it’s essential you understand how exemptions in your state work so you can protect as much property as possible. For example, some states allow you to double the exemption amount if you file jointly. If you can’t double your exemptions, it might make more sense to file separately. 

How Bankruptcy and Divorce Courts Handle Debt

Litigating which debts each spouse should be responsible for in a divorce can be a time-consuming and costly process. Also, assigning the debt to one spouse through a divorce decree doesn’t necessarily relieve the other’s obligations. For example, if your ex was ordered to pay off a certain joint credit card and they didn’t do it, the creditor can still pursue you for full payment. 

One of the benefits of handling bankruptcy is that debts get addressed first. Spouses can address their debt situation by discharging joint debits and eliminating unwanted contracts, like underwater car loans or mortgages. You also get the benefit of an automatic stay, which prevents creditors from making harassing phone calls or sending letters and emails to collect debts. 

Should You File Bankruptcy Before Divorce?

If you qualify for Chapter 7 bankruptcy, it’s often beneficial to file for bankruptcy before divorce. While this will delay your divorce proceedings by several months, it makes more financial sense to choose this option. But couples who can’t pass the Chapter 7 means test or who simply can’t work together any longer may need to wait until after the divorce to address their debt issues through bankruptcy. 

What About Getting Divorced Before Filing for Bankruptcy?

Some couples might find that it makes more sense to file for and finalize their divorce first and then deal with bankruptcy separately. Maybe one of you wishes to file for Chapter 13 bankruptcy because it will allow you to keep more property. Or you may not be able to pass the means test for Chapter 7 bankruptcy as a couple, but you can pass it individually after your divorce. 

There are also many instances where the lines of communication between divorcing spouses have become so broken that cooperating in a bankruptcy proceeding just isn’t possible. The potential downside to waiting until after you divorce, however, is important to understand. Specifically, if one spouse is able to get a discharge of joint debt, creditors may be able to pursue the other for the full amount of the debt. 

Is Filing for Both at the Same Time a Good Idea?

The one thing you want to avoid is filing for bankruptcy and divorce simultaneously. Both cases will impact each other, particularly when it comes to property and debt. This is more likely to cause repeated delays, especially in your divorce proceedings. 

Bankruptcy is one of the many debt relief options divorcing couples should consider when there is unmanageable debt. But it’s never a good idea to jump into a complex legal process like bankruptcy without understanding the facts. An experienced bankruptcy attorney can explain your options and guide you through this process. This ensures you are making sound decisions that will help you get a fresh financial start. 

The Pros and Cons of Filing for Bankruptcy: Is It Right for You?

For many people, there are few things more stressful than worrying about money. While most people may feel some financial tension at some point in their life, for some, this tension can be omnipresent. Being worried about being able to pay your bills, make your mortgage or rent payments on time, or feed your family can be a terrible feeling, especially if it’s gotten to the point where creditors are constantly calling or threatening legal action. 

If you have found yourself in a place of financial despair, it’s important that you understand your full range of legal options. While it’s often considered a last resort, filing for bankruptcy could help. Here’s an overview of what you should know about the pros and cons of filing for bankruptcy, how to determine whether bankruptcy is right for you, and how you can learn more about the bankruptcy process.

What Is Bankruptcy?

Bankruptcy is a legal, court-facilitated process through which a person seeks relief or partial relief from their debts. There are multiple different types of bankruptcy and the type of bankruptcy that an individual files will be dictated in part by the amount of income and assets they have. If a person has enough income, they may enter into a repayment plan through a Chapter 13 bankruptcy; otherwise, they may qualify for a Chapter 7 bankruptcy. 

Pros of Filing for Bankruptcy

Filing for bankruptcy can have many benefits if you are a person who has exhausted all of your other debt-relief options. Some of the main advantages of filing for bankruptcy include:

  • A fresh financial start. As explained by the American Bar Association, perhaps the most important advantage of filing for bankruptcy is that filing for bankruptcy provides a debtor with a fresh financial start. This allows an individual with freedom and peace of mind to move forward with their life with a clean financial slate. This can be a very important time of financial recovery and restarting. 
  • The automatic stay. One of the biggest benefits of filing for bankruptcy is that upon filing, the automatic stay will go into effect. The automatic stay is an immediate pause on all debt collectors’ ability to collect on a debt. Once the bankruptcy process is initiated, a debt collector is legally barred from contacting you to collect on debt while the proceeding is ongoing
  • Ability to keep many assets in some cases. Depending on the type of bankruptcy for which you file and your individual financial situation, filing for bankruptcy may actually allow you to keep many of your assets, especially if you file for a Chapter 13 bankruptcy.
  • Sense of closure and relief. Financial insolvency can be overwhelming. When you file for bankruptcy, there can be a sense of relief and closure that comes with it. This can be good not only for your finances but also for your mental health. 

Cons of Filing for Bankruptcy

While there are many advantages of filing for bankruptcy, the process isn’t without some risks and downsides. These include:

  • Hit to your credit. Chances are that if you are filing for bankruptcy, your credit score is already fairly low. That being said, if you file for bankruptcy, your credit score will drop even lower—and the bankruptcy will stay on your credit report for between 7-10 years. 
  • Challenges securing housing, financing, or certain jobs. Having bankruptcy on your credit report can make it hard for you to take out a new line of credit, get a loan, get approved for a mortgage or a housing rental application, or even get a job in some cases (depending on the industry in which you work). 
  • Loss of some assets. If you file for a Chapter 7 bankruptcy, your non-exempt assets will be subject to seizure and will be liquidated in order to pay back your creditors to the extent possible. This might mean that you could lose a home, car, or another valuable asset by filing. 

Is Bankruptcy Right for You?

Whether or not filing for bankruptcy is the right decision for you really depends on your situation. If you have exhausted other debt-relief options, such as debt consolidation, creditor negotiation, refinancing, asking friends and family for help, and more, then bankruptcy may be the best option. However, you should always consult with a financial or legal professional before filing for bankruptcy to make sure you understand the pros and cons that filing for bankruptcy brings to your life.

Bankruptcy vs. Debt Relief

Facing large amounts of debt can be a very startling and upsetting reality. Before you know it, spending and debt may become out of control, leaving you worried about the future, facing creditors, and even potentially becoming the subject of lawsuits and asset seizures. During our current financial times, this has happened to many residents of Mississippi’s Gulf Coast. 

As you think about your options and what your next steps are for gaining your financial footing, you may be thinking about bankruptcy. Before you file, it is important that you understand all of your debt relief options. As you navigate these options, working with a Mississippi bankruptcy lawyer may provide valuable insight and guidance.

What is Bankruptcy?

Bankruptcy is the court-facilitated process of settling or/and discharging a person’s debt. A bankruptcy judge oversees the process, which may involve a debtor liquidating their assets and repaying creditors or/and entering into a repayment plan that becomes a legal obligation through the court. 

A bankruptcy filing will remain on a person’s credit score for between seven and 10 years and, while it can certainly provide a financial fresh start, it can also make it difficult to secure new sources of funding, a credit card, or a mortgage. It can also make it difficult to secure certain jobs in some cases.

Bankruptcy is typically considered a last-resort option that people only consider after they have exhausted other debt-relief options. It should be undertaken only after counsel with a financial professional or/and lawyer to ensure that the applicant understands all benefits and consequences, as well as what type of bankruptcy they are eligible for and how to correctly initiate and move through the process. 

Other Debt Relief Options

As stated, bankruptcy is usually something that people pursue only after they have explored other debt-relief options to no avail. Of course, depending on your level and type of debt, as well as other factors—such as your current assets and sources and level of income—other debt-relief options may be perfectly satisfactory in helping you to right your financial footing. 

Some examples of other debt relief strategies include:

  • Debt settlement. One type of debt relief option that may be practicable for Mississippi Gulf Coast residents is debt settlement. Debt settlement is a negotiation between you and your creditor(s) that essentially states that you will pay a certain amount in exchange for your total amount of debt being reduced. For example, if you owe $100,000, a debt settlement agreement could include you making a payment of $75,000 over the course of a certain amount of time at a fixed interest rate. The important components of a debt settlement agreement are that 1) you agree to pay the agreed-upon amount and 2) you are getting something beneficial out of the agreement, such as a reduced debt amount or another accommodation, like lower interest payments.
  • Debt consolidation. Another strategy for alleviating debt may be debt consolidation. The idea behind debt consolidations is that multiple, separate debts are all consolidated into a single debt. This can make it easier to manage payments. For residents of Mississippi’s Gulf Coast who have the income to make payments but are struggling with how to prioritize repayment, debt consolidation can be very beneficial. 
  • Refinancing. When a person is facing a large amount of debt, they may be at risk of losing their home or other assets if they are defaulting on these loans. Rather than rush into bankruptcy or just continue to fail to make payments, refinancing may be an option. Lenders want to get repaid, and if repayment can only happen if the terms of the loan are adjusted, a lender may be eager to do this. For example, a lender that serves the Mississippi Gulf Coast may be able to lower your monthly payments in exchange for a longer loan term with higher interest rates. You’ll end up paying more overall but will have less of an immediate financial burden.
  • Credit counseling/budgeting. For some people, getting out of debt may start—and end—with forming good financial habits. Attending financial classes aimed at learning how to create and maintain a budget, make smart decisions with credit, and save for the future can be very valuable. Typically, this approach is combined with another debt relief method.

Be Aware of Scams and Get Legal Help 

As you consider various debt relief options, including bankruptcy, it is important to know that scammers are out there who are looking to take advantage. For example, there are companies that may agree to help you settle your debt in exchange for a large fee. Some of these companies are legitimate; others should be avoided. If you are unsure whether you should work with a company or how to proceed as you seek financial security, it is strongly recommended to consult with a financial professional or Mississippi Gulf Coast bankruptcy attorney to review your options. 

How to Rebuild Your Credit After Bankruptcy

Filing for bankruptcy may be the best decision for you if you are suffering from high amounts of debt. However, while filing for bankruptcy can help to discharge your debts or create a manageable repayment plan, it’s important to know that a bankruptcy filing will have a major impact on your credit score. To be sure, filing for bankruptcy can show on your credit report for between seven and 10 years after your filing, making it difficult for you to secure new lines of credit, get a loan, or even be hired for certain jobs.

Fortunately, there are steps that you can take to rebuild your credit after bankruptcy and get yourself back on stable financial footing. Here are some tips for rebuilding your credit after bankruptcy:

  1. Keep Up with Your Current Payments

The number one most important thing that you can do when you are recovering from bankruptcy is to refrain from incurring any new and unmanageable debt. This means that if you do have any existing lines of credit, it is essential that you keep up with your current payments—this means making payments on time and in full each month. Making your monthly payments should be your number one priority.

And it’s not just loans and credit cards—if you have other bills, such as medical bills, utility bills, etc. that could result in your account being turned over to collections, do everything in your power to find a way to pay these down.

  1. Monitor Your Credit Score

Not only should you keep up with your monthly payments, but you should also have a solid idea of where your credit score currently sits and what impacts it. Fortunately, there are free and easy ways to do this. One option for checking your credit score at no cost to you is to use AnnualCreditReport.com.

In checking your score, make sure that you flag anything that doesn’t look right—such as a claim that you didn’t make a payment in full that you believe you did. If something is misreported on your credit report, you have the right to challenge it.

  1. Consider a Secured Credit Card

One of the downsides of filing for bankruptcy is that it can make it difficult to get a credit card until the bankruptcy filing is no longer reflected on your credit report. One strategy for getting around this hurdle is to open a secured credit card. A secured credit card is a type of card that is backed by a deposit that you pay. For example, you may have to make a deposit of $500 in order to get a credit card with a $500 limit. It may not sound like much, but it can be the first step toward responsibly using credit again. Note that in addition to a deposit, secured cards typically also have higher interest rates and may carry annual fees as well, so be sure to weigh the benefits and tradeoffs before choosing this type of card.

  1. Create Good Overall Financial and Budgeting Habits

Making credit card payments on time and in full and responsibly using a new credit card will be rooted in good financial habits. After bankruptcy, it’s a smart idea to set some financial goals for yourself. For example, now’s the time to review your spending-to-income ratio and create a budget, build up an emergency fund, and understand the best practices for spending as they relate to housing, credit, and more.

  1. Find a Co-Signer

Sometimes, rebuilding credit after a bankruptcy filing can feel a bit like a chicken and egg scenario—you know you need to rebuild your credit score, but you need a credit card to do so; however, you can’t get a credit card or open a new line of credit or a loan because your credit score is currently too low!

This can be frustrating, but it’s not helpless. One option for opening a new line of credit or securing a loan is to find a co-signer. If you have a close friend or family member who has a strong credit score and a stable source of income and who is willing to co-sign for you, this can help build your score. However, it is a big ask of your friend or family member—and they’ll be on the hook for any missed payments, too.

Start Rebuilding Your Credit After Bankruptcy Today

Filing for bankruptcy can be a scary decision, but it may be the best one to give yourself the clean slate you need to move forward. Once your bankruptcy filing is complete, it’s time to start rebuilding your credit. Keeping up with your current payments, monitoring your credit score, considering a secured card, creating good overall financial and budgeting habits, and finding a co-signer for any new loans or lines of credit can all help.

The Effects of Bankruptcy on Co-signers and Guarantors

There are many situations in which a person may turn to a co-signer or guarantor in order to secure a line of credit, loan, or another form of financing. For example, if a person is buying a house but cannot qualify for the loan on their own, they may ask a parent to co-sign. Similarly, a spouse may co-sign on a credit card, or a business partner may co-sign on a business loan. When another person guarantees to make the payments in the event that the borrower defaults, they are called the guarantor; this type of relationship is very common in financial transactions that involve borrowing money.

While relying on a co-signer or guarantor is a perfectly legitimate way to secure financing, it’s important to know that there are consequences for both the borrower and the guarantor in the event of a default. Here’s an overview of what you should know about the effects of bankruptcy on co-signers and guarantors, as well as how a bankruptcy attorney may be able to help you understand your options and put your best foot forward.

What Risks Do Cosigners and Guarantors Face?

The most important thing that co-signers and guarantors should know before they put their name next to a borrower is that regardless of what the original borrower does, they are responsible for the debt. This means that if you, the borrower, fail to make payments, then the creditor has every right to go after the co-signer/guarantor for repayment.

How Will My Bankruptcy Impact My Co-Signer or Guarantor?

When you file for bankruptcy, the “automatic stay” is triggered. The automatic stay is a legal pause on a creditor’s ability to collect on the debt, prohibiting the creditor from contacting you about collecting payments while the bankruptcy case is pending. While the automatic stay protects you, it does not protect your co-signers. So, while a creditor may be legally barred from contacting you for repayment, they do have every legal right to go after your guarantor(s). As such, your co-signers will be on the hook for any amount of money owed.

What If My Debt Is Discharged as a Result of Bankruptcy?

Depending on the type of bankruptcy for which you file, your debt may be discharged. Remember, though, that your filing for bankruptcy eliminates your responsibility to pay your debts—it doesn’t have anything to do with the debts and liabilities of any co-signers. Indeed, if you file for a Chapter 7 bankruptcy, your guarantor will receive no protection from creditors before, during, or after the bankruptcy case.

A Chapter 13 bankruptcy, also known as a wage earner’s bankruptcy, on the other hand, may provide some protection. In a Chapter 13 bankruptcy, co-signers and guarantors actually are protected by the automatic stay (although creditors can ask the court to lift these protections). Chapter 13 bankruptcy also results in a repayment plan, giving you time to pay off your debt so co-signers and guarantors aren’t impacted.

Finally, it should be noted that while a co-signer may be on the hook for your debt, your bankruptcy filing won’t have any impact on their credit report. A bankruptcy filing will significantly harm your credit score and may make it difficult to borrow money or secure a loan in the future.

What Should I Do If I Can’t Make Payments on a Debt?

If you are struggling to make payments on a debt and you have a co-signer or guarantor listed on the debt, one of the first things that you should do is talk with them. Remember, if you default on the debt, creditors can go after them and their failure to make payment could impact their credit. By providing them a heads-up, you may be able to get ahead of the problem early.

If making payments feels impossible and bankruptcy feels like the only option, you should also consider debt consolidation, credit counseling, credit negotiation, or loan modification/refinancing. Creditors and lenders want to get paid and are often willing to work with those who are struggling to make repayments to restructure payment or interest amounts.

If bankruptcy truly is your only option, then working with a skilled bankruptcy attorney is strongly recommended. An attorney can help you to exhaust all other options first and also help you to understand the types of bankruptcy and the requirements for filing for different types of bankruptcy. If your co-signers or guarantors have questions about how your bankruptcy may impact them, your attorney can help to provide answers to these questions, too.