Paying bills may become complicated if the money demanded exceeds your income. You may have made some poor investments or had an emergency that wiped out your reserves. In any event, when you find yourself dealing with debt, the stress can be overwhelming, and you may want to consider bankruptcy is a viable choice.
When you file for bankruptcy, the debt, and those you owe it to, will be handled according to state or federal laws. While each situation is different, you may want to make yourself aware of some general information so you understand what might come.
Stops Creditors from Collecting
Once you file bankruptcy, your creditors must stop actively trying to collect anything you owe them. This means they can no longer contact you by phone, email or mail. Since collection activity may have reached a fever pitch and pushed you to file bankruptcy, the reprieve may ease some of the stress you were feeling for so long.
Bankruptcy Type Dictates How Creditors Are Handled
There are two main bankruptcy routes for individuals, Chapter 7 and Chapter 13. These two differ in the way debts and creditors get handled. They are similar, however, in how the process of paying creditors begins. A trustee will put your debts in order from secured to unsecured. The order may depend largely on the type of debt it is. For instance, a mortgage will come before a car loan, even though both are secured debts. Likewise, credit cards will always come last because they don’t have collateral backing them.
In Chapter 7 bankruptcy, a trustee will evaluate your debts and help decide which secured ones you return. You can typically keep one vehicle (two if you are a two-person household) and a primary residence. After that, a trustee may have other homes or cars returned to the creditor. The trustee evaluates your assets and liquidates them appropriately to pay off as much of the remaining debt as possible. Once the trustee is satisfied you don’t have anything left, the remaining debt is discharged.
Chapter 13 bankruptcy works a little differently. This process still places creditors in line for payment, but the trustee helps negotiate a payment plan that works for you and pays off some or all of your debt. The payment plan lasts from three to five years, and in the end, all remaining debt is eligible for discharge.
Some debt is barred from discharge under bankruptcy laws, including federal tax debt and student loans. Other restricted accounts may also exist. You may want to check with a Bankruptcy Lawyer, like a bankruptcy law firm in Oklahoma City, OK, to help guide you through the steps of the process that fits you.
Thank you to the experts at MartinWren, P.C. for their input into bankruptcy law.