Tips for Filing Bankruptcy
Filing bankruptcy is a huge step for a debtor, and the worst thing to do is to rush into bankruptcy without fully considering the consequences, as well as the goals you had in mind when you decided to seek bankruptcy protection. Some debtors are embarrassed that they have to turn to bankruptcy and view the process as something they want over as soon as possible. But bankruptcy has far-reaching effects and may not be the right answer for every debtor. Be particularly careful in the following situations.
Several of your debts include co-debtors. Also known as co-signors, the people who sign with you on a debt are often family members and the closest friends you have. By signing a legal document guaranteeing that your debt would be paid, the co-debtor is now in a precarious situation as you file for bankruptcy. If your goal is to wipe out as much of your debt as possible, as quickly as possible, Chapter 7 would be a good choice. However, under Chapter 7, co-debtors are not protected. If you receive a Chapter 7 discharge, you would no longer have any legal responsibility to repay the debt that was also signed by your co-debtor. But creditors would then be able to collect from the co-debtor. The only way to protect a co-debtor is to file a Chapter 13 repayment plan, although that virtually guarantees a 60-month schedule to pay your disposable income, after necessary expenses, to your creditors.
Your want to favor one unsecured creditor over others. Examples of unsecured creditors are credit card companies and loans received that were not backed by collateral, such as a car loan or a home mortgage. Let’s say your bankruptcy filing includes a variety of unsecured debt, but your main concern is to repay your father-in-law, who gave you a $10,000 unsecured loan. This is an example where it helps to have an experienced bankruptcy attorney. For example, if you decided not to include the loan to your father-in-law, so that it isn’t discharged in a Chapter 7 filing, that is fraud and could lead to your bankruptcy filing being dismissed. Remember, the Bankruptcy Trustee is going to see all of your financial records. The payments to your father-in-law will be obvious and your failure to include the loan in your bankruptcy filing could have serious repercussions. A bankruptcy lawyer would be able to explain that all debts must be included in a filing. But there’s nothing that stops a debtor from repaying a loan that has been discharged in a Chapter 7 or Chapter 13 case. It would be a good idea, however, to explain to your father-in-law what’s happening, because he will get all official notices in the case as one of the debtors.
You have lots of non-dischargeable debts. If the goal is a Chapter 7 plan to liquidate all possible debt, it’s important to understand the type of debt you are carrying. Secured debt, such as car notes and mortgage payments, must be paid. In addition, there is a variety of debt that has received special state or federal protection and cannot be discharged. If this is the bulk of your debt, a bankruptcy won’t help your situation much.
Non-dischargeable debt in a bankruptcy filing includes:
- Student loans
- Child support or alimony payments
- Fraudulent debts
- Debts that weren’t listed on your bankruptcy petition
- Debts that you incurred after beginning a Chapter 13 repayment plan
- Court judgments in personal injury or wrongful death cases or in case related to actions taken while intoxicated.