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Consumers who find themselves deep in debt with no relief in sight, are constantly hounded by creditor phone calls, threatened with lawsuits, and unable to make their mortgage payments, may be considering bankruptcy. With much written and said about bankruptcy, what are the real consequences of filing for bankruptcy relief and how a bankruptcy lawyer can help you?

Your decision to file will be based on your current financial condition, employment, assets, and the type of debts you owe. Although a Chapter 7 bankruptcy may discharge most of your debt, not all debt is dischargeable. For example, most tax liabilities and student debt are not dischargeable in bankruptcy with certain exceptions.

• Consider the nature of your debt. Is it mostly credit card debt, which is unsecured and more likely to be discharged? Or, are you behind on certain loans such as your car loan or mortgage? In this case, you may be better off negotiating more reasonable terms. For mortgages, there are programs available to help distressed homeowners or you may consider a Chapter 13. Consult your attorney.

 

• You may not meet the means test for filing a Chapter 7 bankruptcy, which would discharge most debt. A means test differs from each state and your income must be below your state’s median level, which changes periodically. If you do not, your other option is a Chapter 13.

 

• You may lose your home and other real estate. The amount of equity in your home differs in each state, so you have equity that exceeds the exempt limit, your home may be sold. The same applies to motor vehicles and other expensive possessions, which the trustee may seize and sell and distribute the proceeds to your creditors. Real estate other than your home is not exempt and will be sold off. You need to consider the consequences of losing these items to eliminating your debt.

 

• Your credit scores will be substantially affected for at least 7 years and you may not be able to obtain loans or receive favorable interest rates. Many auto companies, though, have special programs for debtors that can offer surprisingly favorable terms. Also, you can apply for an FHA home loan two years after your Chapter 7 discharge.

 

• Your student loan will not be discharged, unless you can demonstrate a substantial hardship and have attempted to pay off the debt. Consult a bankruptcy lawyer regarding your student loans.

 

• If your tax liability is at least 3 years old, is not the subject of a lien, and you did file a return at least 2 years before the bankruptcy filing, along with other conditions your attorney can explain to you, then you may be able to discharge it. Otherwise, a Chapter 13 can stay additional fines and penalties.

 

• You cannot file again for 7 years after your discharge. If you may have considerable debt in the next few years, such as a new business that may fail, you may want to put off filing.

 

The consequences of a bankruptcy could seriously affect your life and assets unless you are well-informed and advised. In many cases, you can begin with a fresh start.