Is Bankruptcy Right For You and Your Family?

In difficult financial times, it is understandable why a family would need to explore all of their financial options. If you are having trouble paying your bills or meeting your financial obligations, you may want to consider bankruptcy as an option.

It can be a difficult and trying time when your family is considering bankruptcy.

Before you decide whether or not to file, there are several things you should consider. If you do some preliminary research, the prevailing wisdom seems to be that a lawyer is necessary for all cases of Chapter 13 Bankruptcy and advised for any difficult cases of Chapter 7 Bankruptcy.

However, in 2005, bankruptcies laws changed, making it much more difficult to file for bankruptcy. You can see this in the graph below, taken from the News section of the United States Court website:

For this reason, among others, I would advise that you always see a legal professional before you make decisions that can seriously affect your financial future. It only makes sense to make sure you get professional help with your finances before you take a large step such as filing for bankruptcy.

Chapter 7 bankruptcy is commonly known as a “liquidation bankruptcy”. During this process, a person called a “trustee” gathers a list of your assets and prepares to sell as much of them as they can in order to cover your existing debts. If the amount of money from the sale of your assets exceeds the amounts of your debts, you will receive the remaining balance.

However, there are a lot of exceptions to what assets must be sold during Chapter 7. It is not necessary to lose secured debts such as your house and car during bankruptcy. To keep these very important assets, during the bankruptcy process, you can reaffirm your house and car debt by filling out a “Reaffirmation Agreement”. However, if you choose to do this, you will not be able to "get rid", or bankrupt, this debt for at least six years.

Another important thing to remember is that certain debts simply can’t be discharged during Chapter 7 Bankruptcy. Child support, alimony, and student loans all fall under the category of "non-dischargable" debts and you will still be obligated to fulfill them even after your bankruptcy is completed.

One advantage of a Chapter 7 Bankruptcy is that it can usually be accomplished very quickly. For most clients, the process will be complete about three months after you file.

Chapter 13 Bankruptcy, on the hand, is usually filed by people who have significant non-exemptible assets.
It is far more common to file for Chapter 7 Bankruptcy than Chapter 13. In fact, according to the American Bar Association, only 29% of bankruptcies filed are filed under Chapter 13, compared to the 71% filed under Chapter 7. In Chapter 13 Bankruptcy, the debtor makes payments to a trustee, who then distributes the payments to the creditors. During this time, the debtor cannot be sued by the creditors without the Court’s express permission. Most client's payments plan span anywhere from three to five years.

Similarly to Chapter 7, during Chapter 13 Bankruptcy you are usually able to keep your home.

If you are experiencing financial difficulties and are considering filing for bankruptcy, please feel free to contact my office. We can help you map out your financial options and find out the best fit for you and your family. We will guide you through the process, whatever your decision is. If you have any questions or concerns, the office can be contacted at 718-317-5007.

- Kevin McKernan