Debts are a part of life, and acquiring one is sometimes even a good decision, especially if you know how to handle and pay it off. If you own a home, a car, or a business because of a debt, then in a way, you can still consider yourself in a good position, despite being indebted.
However, that position can take a turn quickly if you suddenly realize that your savings are no longer enough to pay off all these debts. In that case, can you still afford to acquire another debt to settle your existing ones?
If you’re trapped in this dilemma, your best solution is perhaps filing for personal bankruptcy. In Salt Lake City, you can reach out to experienced bankruptcy lawyers when you feel that the time has come. And while you’re about to make that decision, orient yourself first regarding personal bankruptcy, and see if you can qualify.
Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 7 bankruptcy will use your assets to pay off whatever debt you could afford, and the rest can be discharged. It’s also called “straight bankruptcy” or “liquidation bankruptcy.”
When you file for this type of bankruptcy, the court will appoint a trustee, who’s part of the job is to liquidate your assets. The cash collected will then be paid off to the lenders who’ve filed claims.
Your assets will be sorted into two classifications: non-exempt assets and exempt assets. Non-exempt assets are your liquid assets, meaning the ones that can be used to repay your debts, whereas the latter are the ones you’re allowed to keep to start over.The state laws decide which assets are non-exempt or exempt.
After a part of your debt gets successfully settled by your non-exempt assets, the rest of it is now legally discharged, meaning you’re now debt-free, and the unpaid creditors no longer have the right to collect from you.
Chapter 13 bankruptcy, meanwhile, allows you to settle all or some of your debt through a 3- to 5-year repayment plan. The trustee appointed by the court will be ones who will collect your monthly payments and distribute them to your creditors.
Filing for this bankruptcy involves a court hearing to approve your repayment plan, even though you’re still allowed to begin making your monthly payments to the trustee as soon as you submit your plan. After the approval and completion of your payments, the rest of your unpaid debt will now be legally discharged.
You will be required to take an exam and pass before qualifying for Chapter 7 bankruptcy. This test evaluates if your income is less than your state’s median income, which is the prerequisite for this type of bankruptcy.
For Chapter 13 bankruptcy, you can be qualified if the amount of your unsettled debts is no more than $360,475. You should also have paid debts amounting $1,081,400 at most. You’d also need to receive credit counselling for either type.
When to File for Bankruptcy
Filing for bankruptcy shouldn’t be done on an impulse. First, you have to carefully assess your situation whether you’re truly incapable of paying your debts or you just need another plan.
When you find yourself unable to pay your credit card loans in full or being bombarded by collectors constantly or using debt to sustain your needs and losing track of how much you actually owe, then you’re most likely in real trouble. Filing for bankruptcy could be your savior, after all.
Start off by making an organized inventory of all your liquid assets. Make a rough estimate of their values and see if you can qualify for personal bankruptcy. Add up all your unpaid loans, and then compare the total figure to your assets’. If your loans end up being greater than your assets, then you can file for bankruptcy.
Hire a bankruptcy lawyer when you make that decision. They will guide you regarding state regulations about bankruptcy and ensure that your case will proceed without objections. It’s a good way to get a fresh financial start.