Declaring bankruptcy is not a decision most people take lightly. It is something that is only considered in the most difficult of financial situations.
Perhaps the debt collectors’ calls are coming too fast for you to keep up with. You never intended to stop paying those cards, but you found yourself with very few options when the minimum payments skyrocketed and could not be met. You may not understand how bankruptcy works or what type of assets you will need to give up to fulfill financial obligations. See how assets are handled and if bankruptcy might work for you.
Depends on What Kind of Bankruptcy Filed
Assets may not always be seized and sold by the trustee. This is the person appointed by the court to negotiate for you and the creditors clamoring for their money. The trustee takes a look at your financial picture and decides the best way to proceed forward. This may include getting a proper accounting of your assets and savings so the trustee knows how much money you can pay off. State laws differ, and in some places, some assets cannot be seized and liquidated by a trustee. These may include your primary residence in some states.
Chapter 7 Assets Liquidation
There is another consideration when it comes to how assets are used during bankruptcy. There are a few bankruptcy routes that can be taken, and how assets are handled depends on which type you file. Chapter 7 bankruptcy is the avenue that will lead to asset liquidation. Creditors are notified of the bankruptcy filing and then have to file a claim with the trustee. Debts are put in order, and priority is given to those in the front of the line. These usually include secured debts or those that have collateral attached. When the trustee sells off assets, the creditors are paid in the order they appear. Once payments are made, all debts are discharged, even those that could not be paid.
Chapter 13 Payment Plan
Chapter 13 bankruptcy involves a restructuring of your debt. The trustee meets with creditors and then negotiates a payment plan that is favorable to both parties. As long as the conditions of this plan are met within three to five years, your remaining debts should be discharged at the end. There is no requirement to sell assets, and some revolving loans like car payments and mortgages are not included in Chapter 13.
A bankruptcy lawyer, can help you assess your financial picture and decide which type of bankruptcy filing works best for you.