There are many factors to consider when filing for bankruptcy relief, but the amount of debt you have isn’t necessarily one. Many people think that they need massive amounts in debts before considering Chapter 7 bankruptcy. However, this is not always true. Other factors like your monthly income and ability to repay creditors will determine whether it’s possible for you to file a successful case.
It’s been a tough year, and you’re starting to feel really overwhelmed. You’ve looked into your options for bankruptcy in Kentucky but don’t know where to start from there. Luckily, the Chapter 7 attorneys at O’Bryan Law Offices can help clear up any confusion or questions that might have arisen while looking through the online information. If you’d like to get your financial life back on track, give us a call at 502-400-4020 today, or visit us online.
How Do the Types of Debts I Have Affect Filing for Bankruptcy?
The debts you have greatly affect your bankruptcy filing procedures. Many people ask, “How much do you have to be in debt to file Chapter 7?” As we stated before, the amount of debt you have doesn’t necessarily matter in a bankruptcy case. What matters much more are the types of debt you have. It is important to note that filing for bankruptcy does not eliminate all types of debt. These debts which cannot be eliminated are called nondischargeable debts. Below, we include a list of the most common nondischargeable debts.
- Alimony or spousal support
- Child support
- Priority tax obligations
- Student loans
Unfortunately, if most of your debts are in the form of nondischargeable debts, Chapter 7 is not the best option for you. However, pursuing a payment plan under Chapter 13 bankruptcy is a good alternative option. These repayment plans last from 3 to 5 years, and help many people either reorganize their debts or pay them off completely.
What Debts Must I Continue to Pay During My Chapter 7 Bankruptcy?
In terms of dischargeable debts, many people find that Chapter 7 bankruptcy filings are perfect solutions. These debts include things like credit card balances, medical bills, and even personal loans. However, it is not the solution for every kind of debt. Two main types of debts exist that you still must pay while your case is underway.
- Debts Incurred After Filing for Bankruptcy: Let’s say your bankruptcy is still pending. You receive a bill in the mail and wonder if the bill’s balance gets factored into your case. If you incurred the debt after filing, the court will not include this debt in your case. This is a post-petition debt, which they expect you to pay. Below, we include examples of post-petition debts.
- Child or spousal support
- Rent or lease payments
- HOA fees
- Most taxes
- Debt Secured by Collateral: If you purchased property on credit, lenders usually require collateral as a safety net against unpaid loans. These are “secured debts.” Usually, we see these debts in the below circumstances.
- Home equity line of credit
- Car loans
- Loans for business properties
Your ability to discharge secured debts depends on whether or not you return the property you pledged as collateral. If not, the lender has the ability to exercise their lien rights to reclaim the property in foreclosure or repossession. Should you fall behind while in bankruptcy proceedings, the bank can file a motion with the court to proceed against your property.
Most Payments Stop During Bankruptcy
Even if you can’t discharge all of your debt, bankruptcy might give you a break from constant collection attempts. The automatic stay protection that stops most creditors during bankruptcy also extends to many debts that cannot be discharged. Below, we include examples of these debts.
- Student loans
- Most taxes
- Government or court fines and penalties
In the event of bankruptcy, it is important to be aware that you will still have legal obligations after the case has been closed. For those who own property unprotected by a bankruptcy exemption, they may experience some changes in their non-dischargeable debts depending on how much income and assets are being liquidated for repayment purposes.
Voluntary Debt Repayment
Though you might feel the need to repay a debt that would be discharged in your bankruptcy, there are risks. Keep in mind that if you owe money to friends or relatives, it could complicate matters later on by creating an issue with whether they’re entitled as creditors of your estate after all is said and done. To avoid trouble altogether, wait until after closing before making any voluntary repayment so these issues don’t arise at their worst time – right when everything’s finally settled.
Do I Have Too Much Debt to File for Chapter 7 Bankruptcy?
Chapter 7 is a bankruptcy option for individuals with any amount of debt. It erases the debts and does not involve repayment. However, corporations cannot file for this type of discharge in bankruptcy court. Worrying about qualifying for Chapter 7 bankruptcy because of a large amount of debt isn’t necessary. However, it is possible to have too much income to qualify.
Can You Negotiate Your Debt With Your Creditors?
Absolutely. Every once in a while, it is possible to negotiate with your creditors to have them accept a smaller amount than you originally owed. Agents also sometimes decide that accepting partial payments now rather than dragging out the process is more worthwhile. Settling for the lesser amount, luckily, still counts as your debts being “paid in full.” This has a less negative impact on your credit history over time. Below, we list two options that many people pursue in negotiations with creditors.
- Partial repayment: When negotiating with a debt collector, start low. For example, propose 20 to 25 cents on every dollar owed and see if they accept it. This is an easy way of determining if the person you’re talking to will compromise or not. If that doesn’t work, then offer them 50 cents on each dollar. Higher negotiation amounts have higher success rates, and you still benefit from their acceptance.
- Payment plan: One of the first steps to pay off your debt is to sit down and create a monthly budget. What expenses do you have every month? How much will be going toward paying back any outstanding debt each month? If it’s been difficult for you in the past, maybe negotiations with collectors can help lower that amount so that payments are more manageable on an ongoing basis.
Contact O’Bryan Law Offices in Louisville For Bankruptcy Help
At O’Bryan Law Offices, we ensure that you understand the process and guide you through it to the best of our ability. Our goal with every client and in every case is to help the case proceed as smoothly as possible. If you’re wondering how much do you have to be in debt to file Chapter 7, we’re here for you. For more information about Chapter 7 bankruptcy discharges or for a free consultation, call our office at 502-400-4020 today.