Maybe you have been in a situation where you’ve had to consider it, but you were too afraid of bankruptcy and scared of the implications to file for one.
Many people’s fear of bankruptcy is based on what they’ve heard about the consequences that may follow. Thankfully, these fears are often unfounded.
The main thing that people fear is losing everything they have in the process. But the purpose of filing for chapter 7 or chapter 13 bankruptcy is specifically to not takeeverything you have. Both can allow you to keep your assets.
Why are People Afraid of Bankruptcy?
Being afraid of bankruptcy because you fear losing all your property is an understandable concern based on misconceptions. It is true that the court needs to consider whichassets to liquidate to pay off debts. But even in liquidation of nonexempt assets, there will still be property that cannot be liquidated.
In chapter 7 bankruptcy, a nonexempt asset is anything that the court can sell. Different states have different exemptions that you can apply, and you can work with your lawyerto determine which of your assets you want to be exempted. This ensures that you can pay your creditors and not have to work from scratch after the process. If you do not have anyassets that can be called non-exempt, it will be referred to as a non-assets case. This means your creditors will not get anything from the process.
On the other hand, if you are filing under chapter 13 you will be required to settle your debts through a repayment plan. You will have to make payments over a three to fiveyear period. These payments are usually lower than what you are already paying monthly. The advantage is that it reduces the financial pressure, allowing you to feel moresecure.
Will I Be able to Apply for a Mortgage or Car Loan?
Yes, you will still be in a position to apply for a mortgage or car loan. Many people have a fear of bankruptcy because they are worried about what it will do to their creditscore. But even though the process will hurt your credit, you will be in a position to regain it sooner than you think.
The challenge is to demonstrate that you are responsible and can pay your debts. In just a few years, you can approach a lender. The time it takes to get to this point willdepend on a number of factors. The type of bankruptcy and how you maintain your credit score after bankruptcy are some of those factors.
Bankruptcy and Retirement
What happens to your retirement accounts after a bankruptcy proceeding? This will also depend on factors such as state regulations and whether you are retired or about toretire.
If you have not retired, you ought not to be afraid of bankruptcy and what it will do to your retirement savings. Your 401(k), 403(b) and other retirement accounts will not becharged under chapter 7. Under chapter 13, the money in these accounts will not affect how much you will be required to pay back. Also, in Ohio, if the account is ERISA qualified,it will be exempt and will not be touched by the process.
Fear of bankruptcy is often a result of misinformation. You shouldn’t avoid bankruptcy because of fear of losing your credit score or your retirement savings. Sit downwith your bankruptcy attorney and decide what your next course of action should be. We offer free bankruptcy consultations so you can learn about all of the options available to you.
The information in this post is for educational purposes only. It should not be interpreted as legal advice.
