Filing for Bankruptcy is a decision that you should make only after balancing it against all of the other circumstances and issues related to your divorce. Bankruptcy is a federal matter and is not covered by state law or the Texas Family Code.
The reason why you would want to file for bankruptcy is to discharge some or all of your debts or to reorganize the payments on debt that you will still retain after the completion of the bankruptcy. If successful in your bankruptcy proceeding a judge would issue you a discharge that absolves you from having to make future debt payments on that loan. I should note that federally insured student loans are not dischargeable in bankruptcy proceedings. If a debt is discharged then that debt collector may not contact you in order to collect the debt.
The types of Bankruptcy proceedings
As an individual you can file for bankruptcy under Chapters 7, 11 and 13 of the bankruptcy code. Let’s break down each according to its specific attributes.
Chapter 7 Bankruptcies
Chapter 7 bankruptcy means that you as the debtor have to turn over any property that is not exempt (your home) for the purposes of paying back to your debt(s). A trustee will be assigned to your case to collect and hold this property. Household goods, vehicles and retirement accounts are among those assets that are exempt from the collection requirements under a Chapter 7 bankruptcy.
Once the non-exempt property is collected, the trustee will then take your property and convert it to cash. That cash will be used to pay as much of your debt as possible. Debtors favor Chapter 7 bankruptcy on the whole because a remedy is arrived at quickly (relatively speaking) in roughly six months. Due to the fast turn around time you would be able to move on with the rest of your life and begin to take steps towards rebuilding your financial affairs post-bankruptcy.
Chapter 13 Bankruptcies
A Chapter 7 Bankruptcy involves you submitting a plan to the judge in your case that relays a reorganization of your debts either partially or in full. There is a trustee involved in Chapter 13 cases as well and you will be obliged to make regular payments to this trustee who will in turn send those payments on to those creditors who are due money from you.
If you earn an income that is above the national average you may have to file a Chapter 13 bankruptcy instead of a Chapter 7 Bankruptcy. The reason is that you have the ability financially to pay creditors back to an extent that those folks who file Chapter 7s are not. There is more to the analysis of which bankruptcy type you qualify and you should speak to a bankruptcy attorney in order to learn more.
Credit cards and medical bills usually do not figure into Chapter 13 bankruptcies because these are unsecured lenders who do not have the ability to reclaim property or put liens on your home or assets. Secured lenders like your mortgage lender or your vehicle financier are among those debts commonly handled in Chapter 13 bankruptcy.
The impacts of bankruptcy on individual persons
An immediate concern of most people when faced with the decision of whether to file for bankruptcy is what effect the proceedings will have on their credit. If you are in this position I would point out that your credit is probably not in the best shape already considering the fact that you are considering bankruptcy as a viable option. Your having missed payments previously tells me this.
On the plus side, bankruptcy offers a fresh start for you and your future life. It is available to us as citizens to allow us to get some relief from debt collectors and a past that you would probably like to move away from as much as possible.
Be aware that many debts can simply be negotiated upon by you directly with either the lender or the third party debt collector working on behalf of the lender. In fact, many companies exist who buy debt accounts from lenders for pennies on the dollar. These businesses will typically accept, you guessed it, pennies on the dollar to settle your debt. To do so it is a good idea to get the settlement offer in writing and then to never proceed to give the debt collector access to your checking account.
Get a prepaid debit card or send a check to the company to pay off the debt once you have it confirmed in writing. Once a letter confirming your having paid off the debt is sent to you it should be kept for a good long while. You can verify that the debt has been paid in full by checking your credit report a few months after the debt was paid.
What good can a debt consolidation company do you?
If you are a stay at home parent or are feeling ill and are at home during any given weekday I’m sure you have seen commercials on television for multiple debt consolidation companies. These businesses make it seem like they are the cure to all that ails you. Your credit card debt, car note and other loans can all be rolled into one neat little package with a single interest rate to pay on. If you’re not careful you will sign up for a program like this with the false knowledge that you actually did something to better your situation when you really haven’t let. Allow me to explain why.
First of all debt consolidation companies will often involve you allowing these folks to put a lien on your vehicle or your home that are not exempt in a bankruptcy. This puts you in a tough position in this regard. Secondly- unless the debt consolidation lowers your overall interest rates on the loans you haven’t actually done anything productive other than rearranging the deck chairs on the Titanic. Finally, the companies operate by not paying on your debts at all until the lenders contact them directly. They will negotiate on your behalf but it won’t be for months and months. All the while you are paying them for the privilege to do so. These are services you could perform yourself.
Can you solve your debt problem(s) without bankruptcy? Talk to an attorney
If you are going through a divorce and are considering bankruptcy you are best left to speak to both a family law attorney and a bankruptcy attorney about how the processes of one legal case affects the other. These attorneys may actually be able to guide you into a situation where you can resolve your debt problems while not going through what is sometimes a long and difficult bankruptcy.
After you have had an opportunity to discuss your situation with these folks about the viability of a bankruptcy given your situation the next thing you need to decide upon is which form of bankruptcy to file under. These decisions can have a lasting impact on your life moving forward and can cause delay in your divorce being decided as well.
Wondering about when to file a bankruptcy or how a short sale of your home would work? Come back to our blog tomorrow to learn more
If you owe more on your house than its market value you are known as being “under water” on your home. People in your position have spoken to me on previous occasions on whether or not it would be a good idea to attempt to do a short sale on their home as opposed to letting it become foreclosed upon. If you have questions on this subject then you should come back to our blog tomorrow to read up on the subject in greater detail.
Questions on divorce or family law in general? Contact the Law Office of Bryan Fagan
The attorneys with the Law Office of Bryan Fagan, PLLC appreciate your having taken the time to read through today’s blog post. If you have any questions about it or seek clarification on any number of family law issues we invite you to contact our office today. We would be happy to schedule a free of charge consultation for you where you can meet with one of our licensed family law attorneys to ask your questions.