Robert S. Stevens is a bankruptcy lawyer in Charlottesville, Virginia who serves clients in Albemarle and surrounding counties. This article discusses bankruptcy options. If you live in the Western District of Virginia and wish to learn more, we invite you to contact us for a free consultation.
If you are in overwhelmed with debt and there seems to be no way to pay your creditors, bankruptcy may be the solution. Although it is a loaded term — mostly thanks to the media’s tendency to equate it with financial ruin — bankruptcy exists to help you.
A New Beginning?
Chapters 7 and 13 bankruptcy can mean a completely fresh start. We often treat bankruptcy as an end when we should view it as a new beginning.
No matter your unique situation, it is essential to remind yourself of one crucial fact: you are not alone. Debts can accumulate from excessive spending, job loss, business collapse, unexpected medical bills, and more, and it doesn’t take much misfortune for them to spiral out of control. Nearly one million people seek bankruptcy protection in the United States every year. Doing so allows them to manage or eliminate debt.
To understand your bankruptcy options, it helps to review the bankruptcy filing process, starting with how to assess your finances and decide if filing for bankruptcy is the right step. Then, we’ll explain the differences between Chapter 7 and Chapter 13 bankruptcy.
Before we begin, we’ll bust a few bankruptcy myths:
- I could go to “debtor’s prison.” In the United States, the courts cannot jail you for owing money. Bankruptcy exists to alleviate you of your debts so that you can start over — quite different from punishing you for them. Creditors can take you to court, but jail will not be a punishment if you haven’t broken the law.
- Bankruptcy affects your spouse’s credit score. If you are considering declaring bankruptcy and are married, your spouse’s credit score will be unaffected (assuming the debt is only in your name).
- Declaring bankruptcy is prohibitively expensive. It isn’t — filing for bankruptcy costs around $300 maximum. Lawyer fees are likely to add a couple of thousand dollars to the bill, but these expenses vary depending on the law firm.
Let go of scary preconceived notions about bankruptcy. Once you’ve done that, read on to determine whether it’s the right step for you.
How to Assess Your Financial Risk
We live in a debt-based economy. Necessities like cars, houses, education, and possessions are available to us through financing. It is easy to see how we can get in over our heads with monthly payments. The ready supply of credit cards exacerbates this issue, allowing us to make minimum monthly payments and rack up interest charges.
The following questions will help you assess whether you are in a financially safe place:
- Are you uncertain as to how much debt you have?
- Do you find yourself avoiding your finances instead of addressing them?
- Are you paying off minimums on credit cards instead of the full amount?
- Are you being contacted by debt collectors?
- Are you thinking of consolidating your debt?
While answering “yes” to more than one of these questions doesn’t necessarily mean you are a candidate for bankruptcy, it does indicate you should take some time to organize your finances. Doing so can take just a few hours and can help you determine if bankruptcy is the best option. Let’s see how.
How to Know if You Should File for Bankruptcy
You are bankrupt if your debts outweigh all of your assets and earnings.
To gauge whether this is the case for you, add up all of your assets. Start with liquid assets like bank accounts, IRAs, 401Ks, stocks and bonds. Then, move on to fixed assets, which include your home(s), vehicles, and other personal property that you could sell for cash. Estimate values conservatively.
Now total your debts. Take your credit card statements and add up the amounts owed. Then, do the same for all outstanding bills.
If the amount of debt you owe is higher than your assets, you are a potential candidate for declaring bankruptcy. But even if that’s the case, it is best to try working out other ways of dealing with your debts first. Consider consolidating credit card debts or negotiating a payment plan with those to whom you owe money. Refinancing a loan can also free up cash. Seek the counsel of a financial advisor to determine the best course of action. There are many ways to extricate yourself from a sticky financial situation, so make sure you look into your options.
Bankruptcy may be the best choice when:
- You have unpaid taxes
- You have been jobless for some time and are receiving no income
- Your employer is garnishing your wages
- Lawsuits are pending against you due to unpaid bills
- Your home is at risk of foreclosure
The two most common forms of bankruptcy are Chapter 7 and Chapter 13, which we’ll break down below.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, otherwise known as “straight bankruptcy,” involves taking all assets that aren’t exempt and selling them for cash. This money is then used to pay back creditors, which may include credit card companies, medical institutions, or banks.
After the bankruptcy trustee sells your assets, creditors demanding repayments receive a notice, called a “stay,” that directs them to stop contacting you. You then receive a discharge, which is an official notice from the court that relieves you of your debts. The statement typically arrives several months after your attorney initiates the bankruptcy proceeding.
Chapter 7 bankruptcy is best for you if:
- You are unemployed or have a very meager income
- You have significant unsecured debt, such as unpaid medical bills
- You are having marital problems
There are a few things to keep in mind about Chapter 7 bankruptcy:
- It remains on your credit history for ten years — though this doesn’t necessarily mean you won’t be able to qualify for a mortgage
- Most of your assets are repossessed to pay off your debts
If you own a home, a business, or have other assets you do not wish to risk parting with, it is worth looking at Chapter 13 bankruptcy as an alternative. Remember that Robert S. Stevens offers free consultations to discuss your options and find the best choice for you.
Chapter 13 Bankruptcy
Some people refer to Chapter 13 bankruptcy as “reorganization bankruptcy” because it alters your debt by creating a realistic plan to repay it. If you have a reliable income each year, Chapter 13 establishes a three- to a five-year timeframe for you to pay off your debts. At the end of this grace period, the court discharges all remaining amounts you owe.
As with Chapter 7 bankruptcy, Chapter 13 issues an automatic stay that forbids creditors from contacting you for payment. Chapter 13 differs from Chapter 7 in that it allows you to keep possessions like your home and vehicle while paying off your debts for several years.
Chapter 13 may be the best option for you if:
- You have consistent income
- You own property that you don’t wish to forfeit, such as a family house or heirlooms
- You could pay off your debts if given enough time to catch up
Here are a few things to keep in mind about Chapter 13 bankruptcy:
- Your disposable income is used to cover debts
- The payback period can last up to five years
- The bankruptcy can remain on your credit for up to ten years
- Some debts, such as student loans, can survive bankruptcy and still require repayment
Come to Robert S. Stevens, Esq. to Manage Your Debt
If you are considering bankruptcy, talk to one of Charlottesville’s leading experts in bankruptcy law. Let the law firm of Robert S. Stevens guide you toward the best solution for your present situation and your future. With over a quarter of a century of experience, Robert Stevens has a detailed eye for bankruptcy cases and treats each case on an individual basis.
Remember: the only way to determine which bankruptcy option is right for you is to talk with a bankruptcy lawyer.
The subject of bankruptcy evokes strong reactions — and opinions — from others. You’ll probably hear a lot of advice from friends, family, and coworkers. However, the average person does not understand the intricacies of bankruptcy law and how it applies to your particular situation. Talk with a trusted expert.
Filing for bankruptcy is a new beginning. Talk to Robert S. Stevens today to learn more.