When to Consider Chapter 7 Bankruptcy
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Chapter 7 starting at $999, plus filing fees and costs.
Chapter 13 starting at $2,500, plus filing fees and costs.
Factors to consider
There are a lot of factors at play in deciding whether to file Chapter 7 or to attempt to workout debts outside of bankruptcy, such as debtor’s income, assets, and type of liabilities, etc. Very often, however, Chapter 7 is the most efficient and practical way to resolve significant unsecured debts of debtors with below median income or little disposable income (income left over after payment of necessary living expenses.) Even when debtors succeed at working out their debts outside of bankruptcy, they may end up filing for bankruptcy any way if they are not able to stick to their payment plan. Chapter 7 bankruptcy wipes out debtors’ dischargeable debts and allows them to have a fresh economic start in as little as 3 months.
Type of debts: dischargeable v. non-dischargeable
Not all debts can be discharged in bankruptcy. If the debtor’s hardship arises from collection of the non-dischargeable debts, such as student loans, certain taxes, domestic support obligations, criminal penalties, Chapter 7 will not be the solution. On the other hand, if most of debtors’ liabilities are unsecured debts, such as credit cards, medical bills, judgments, and the debtor’s financial situation leaves no room for repayment of the debts, whether in whole or part, then Chapter 7 bankruptcy should be strongly considered.
Redemption of Collateral
If getting a fresh economic start is a goal, then in addition to discharging unsecured debts, the debtor should consider redemption of any of the up-side-down secured debts. Chapter 7 allows debtors to pay a secured creditor a replacement value of the collateral in one lump sum payment and to discharge the balance, retaining the property free and clear after bankruptcy discharge. Although this may not be an option for mortgages, this may be a good way to get rid of car loans that are significantly underwater and/or require expensive repairs. Some jurisdictions allow debtors to redeem their vehicle for a trade-in value. This could result in huge savings to the debtor. If the debtor is unable to come up with redemption amount, financing for redemption may be available in certain cases. See Reaffirmation and Redemption in Chapter 7.
Fresh Economic Start
Finally, consideration should be given to the debtor’s credit rating and peace of mind. Chapter 7 discharge stays on the credit report for 10 years from the date of filing. Bankruptcy significantly impacts the credit rating initially. However, with responsible credit management, debtors can rebuild their credit score and obtain new credit within several months to several years from the bankruptcy discharge. Delinquencies, such as credit card debt, repossessions and judgments, are reported on the credit report for 7 years. If the debts are not settled or repaid, they may suppress the credit score during the entire reporting timeframe, hindering debtors’ ability to obtain new credit. A Florida judgment can be enforced for up to 20 years. A judgment creditor can garnish debtors’ wages or money in the bank account to collect on the judgment. So, debtors with delinquent debts and judgments can be looking over their shoulders for up to 20 years, worrying about getting sued or getting a higher paying job, depositing money to their bank account, or acquiring new property, over the threat of garnishment. Chapter 7 bankruptcy may provide relief and a fresh economic start in as little as 3 months.
How can we help?
If you live paycheck-to-paycheck and struggle to pay your debts, call us for a free phone consultation to learn your options. You may qualify for Chapter 7 bankruptcy; however, it does not mean that it is the only option or the best option in your situation. There are many alternatives to bankruptcy, such as debt settlement, debt consolidation, liquidation of assets, asset protection, and sometimes even just knowing your rights and doing nothing.
At Anna Handy Law Firm, P.A., we are acutely aware of the financial strain of our clients. We do not charge you for the initial phone consultation. We do not push you to file bankruptcy to get a retainer. We don’t judge – we find solutions. We give you honest advice about your options and rights, including the “doing nothing” approach. As such, we offer very affordable bankruptcy fees. We make our fees competitive and in certain cases, we offer payment plans to address each case individually as each case has a different set of circumstances.
If you are overburdened by your debts, being sued or harassed by creditors, or subject to wage garnishment, do not hesitate to call us now for a free initial phone consultation. The attorney’s direct business cell phone number is (386) 248-3000. You may also email us at [email protected].