Filing bankruptcy is not an easy decision. It does not always make your debts magically disappear, nor is it a straightforward process that is easy to comprehend and accomplish. If you are wondering if you should file bankruptcy, then you are facing a stressful and impactful decision that requires careful evaluation..
Though the social stigma of filing bankruptcy is negative, it does not necessarily mean that you will lose all your assets nor does it mandate a life living in poverty. Most importantly, it does not mean that you cannot get credit in the future!
The truth is, bankruptcy was created to help people regain financial control over their lives . For many, it means a second chance at financial independence.
Why File for Bankruptcy?
Many people wonder why file for bankruptcy? Though filing for bankruptcy may temporarily impact a person’s credit, there are many positives for filing bankruptcy. Depending on your financial situation, a bankruptcy filing can mean keeping a car or home or setting up a realistic payment plan for your debts. Many people who file bankruptcy do so after a severe change in their financial situation such as divorce, steep medical bills, significant payments after a lawsuit settlement, or the loss of a job.
Do you have any other options?
Filing bankruptcy is typically advised only as a last resort. Though some people may benefit from filing bankruptcy, there are many negative aspects. Your credit will be temporarily impacted. This can be especially damaging for people who have worked hard for a high credit score. Many people who file, however, see their credit score go up after the case is over as their Debt to Income Ratio (a major factor in determining credit score) becomes much more favorable due to the removal of their debts.
Even with the help of a qualified bankruptcy attorney, the filing process is time-consuming and stressful. For example, Illinois state law requires the completion of two personal financial advisory courses both before and after filing. A bankruptcy filing is also public information, which can be a dire consequence for people who value privacy.
Are my debts dischargeable or non-dischargeable?
Dischargeable is a common term in bankruptcy law. The phrase means that the debts are wiped out and do not require further payments. Once the debts have been discharged, creditors are no longer able to ask for or collect payments. Some debts that can be discharged include costs related to:
- Medical bills
- Personal loans
- Money owed due to leases or contracts
- Lawsuit settlements
- Credit Cards
All of the aforementioned types of debts will be cleared under the two most common bankruptcy filings, Chapter 7 and Chapter 13. A Chapter 13 filing will discharge all the debts above, and may also dissolve debts related to debts from a divorce (except alimony or child support payments) and debts from taking out loans on a retirement plan.
It is a common misconception that all debts are dissolved if you file for bankruptcy. Some debts, however, are considered non-dischargeable, which means that they do not qualify to be discharged or wiped clean. Non-dischargeable debts are debts related to:
- Child support or alimony payments
- Some Income taxes
- Debts to government agencies
- Debts for injury caused to another person while driving intoxicated
- Court-ordered fines or penalties
- Some types of student loans (private student loans are less likely to be discharged than federal loans)
What are the specific nuances to filing bankruptcy in my state?
As with other areas of practice, states have differing bankruptcy laws. Illinois in particular has complicated nuances for filing bankruptcy, and the smallest mistake can result in your bankruptcy filing not being successful.
In order to best understand your unique circumstances and what type of bankruptcy filing is right for you under Illinois law, it is highly advisable to speak with a reputable bankruptcy attorney.
Schottler Law of Chicago, Illinois has more than 20 years of experience practicing bankruptcy law and boasts a high success rate of 80 percent of cases being discharged, which is 50 percent more than larger law firms. Sign up now for a free 30-minute consultation to understand how Schottler Law can help you discharge your debts and seize control of your finances.