Exploring Social Security Cases and Outcomes

What Bankruptcy Can Do For You

by Marie Caldwell

The big decision to file for chapter 7 bankruptcy is not the right one for everyone, but there are almost no legal moves available that can so quickly and efficiently eliminate debt. A chapter 7 bankruptcy filing allows you to make a fresh financial beginning; putting to use what you have learned from past mistakes and re-building your credit and financial security. Read on to learn more about what bankruptcy could do for you.

Two Types of Debt

For bankruptcy purposes, your debt is divided into secure and unsecured. Knowing the difference between these two and how much you have of each type is critical to the bankruptcy decision. For example, if you have a lot of secured debt, you may also be in danger of losing more property to bankruptcy seizure.

1. Unsecured Debt: This is the area that gives you the most "bang for your buck" when it comes to a chapter 7 filing, since you can virtually eliminate all secured debt without risking any property. Credit card debt and personal debt (from people or from a lending institution) go into the unsecured bucket, and most consumers are up to their eyeballs in unsecured debts. Once you file for chapter 7 bankruptcy, not only will that burdensome debt disappear, but the high minimum payments you've been having to make each month goes with it. Furthermore, the harassment and misery brought on by creditors and collection agencies will come to a complete stop.

2. Secured Debt: This type of debt has property tied to it, usually by the purpose of the loan itself. For example, the most common type of secured debt is a mortgage; the home is the property that secures the debt. If you don't pay your mortgage, you could lose the home by foreclosure, or by seizure in bankruptcy. While the filing of a chapter 7 bankruptcy can bring a temporary stop to foreclosure proceedings, you must bring your payments up to date to avoid losing the home. Many consumers are thrilled to find that the money they were putting on those credit cards can now be spent on getting the mortgage up to date.

Unfortunately, even if you can get caught up on your mortgage payments, your home may still be in jeopardy. Chapter 7 is known as the "liquidation" filing, and the bankruptcy courts could seize your real estate and sell it to help pay your other debts. Rest assured that this is not common, but is possible. The right circumstances must exist in order to keep your home, such as:

  • Your home's value to the bankruptcy trustee will bring less interest if you still owe a lot more on the mortgage than the home is worth. It is the equity of the home that is of interest.
  • Your total bankruptcy debt must exceed the value of your home equity for it to be seized.
  • You can use your state's homestead exemptions to bring down the value of your home, thus making it less valuable for to the bankruptcy trustee.

Speak to your bankruptcy attorney or Lynn Jackson Shultz & Lebrun PC about a chapter 7 filing today.