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By Logan Weinkauf
Founding Attorney

Bankruptcy is a debt relief option that many people consider to get rid of debts that they cannot afford to pay. However, bankruptcy may or may not be the best option to resolve a debt problem. Our Massachusetts bankruptcy attorney discusses filing for bankruptcy in this blog, including things you should consider before making a final decision.

Understanding Bankruptcy: An Overview

Bankruptcy is a form of debt relief. It discharges debts a person cannot afford to pay. It is also available to businesses. Bankruptcy exists under federal law. However, states may have special rules for bankruptcy exemptions for cases filed within their state.

Generally, bankruptcy discharges most unsecured debts, including medical bills, credit cards, and personal loans. If you want to surrender property secured by liens, bankruptcy also gets rid of any deficiency remaining on the account after the property is sold.

Evaluating Your Financial Situation: When to Consider Bankruptcy

Each person’s situation is different. However, obtaining advice about filing bankruptcy before you become too far behind with your debts is beneficial. The longer you wait to file bankruptcy, the more your credit score suffers. Also, creditors may take legal action to collect debts, which could result in unnecessary property loss, stress, and personal judgments.

Chapter 7 and Chapter 13: Different Types of Bankruptcy

Most people file bankruptcy under Chapter 7 or Chapter 13. The two types of bankruptcy are very different.

Chapter 7 bankruptcy is intended for people who cannot afford to pay any portion of their debts. They must pass a Means Test to receive a bankruptcy discharge in Chapter 7. The Means Test must show that the person has very little disposable income or negative disposable income to qualify for Chapter 7.

Chapter 13 bankruptcy is a reorganization. The debtor proposes a bankruptcy plan to repay some of their debts. In most costs, the debtor only pays a percentage of their unsecured debts. The percentage they pay depends on several factors. When the person completes the Chapter 13 plan, the remaining balances owed to the unsecured creditors are discharged.

The downside of Chapter 7 is that you could lose property if you have equity above the bankruptcy exemptions, but most debtors keep all their property. Chapter 13 may be a better option if you are trying to stop a foreclosure or repossession.

The Consequences of Declaring Bankruptcy: What to Expect

When you file for bankruptcy relief, your creditors must stop all collection efforts. Creditors and debt collectors cannot try to collect discharged debts. If you have property that has substantial equity above the bankruptcy exemptions, the Chapter 7 trustee may seize the asset to pay your debts. In a Chapter 13 case, the equity could increase your monthly plan payments.

Your bankruptcy stays on your credit report for ten years if you file under Chapter 7 and seven years if you file under Chapter 13. You will experience an initial decrease in your credit score. The decrease depends on your credit score when you file bankruptcy. However, the bankruptcy wipes out your unsecured debts. It also stops collection efforts. Therefore, many people see an improvement in their credit score within a year after completing their bankruptcy case.

Life After Bankruptcy: Rebuilding Your Financial Health

There is life after bankruptcy. You can rebuild your financial health by having a fresh start free from overwhelming debts. Steps you can take to rebuild your credit and financial health include:

  • Make all future credit and debt payments before the due date
  • Review your credit reports to ensure all accounts discharged in bankruptcy have a zero balance and no further collection efforts
  • Contribute to an emergency savings account to avoid going into debt if an unexpected expense arises
  • Use debt wisely when you can qualify for loans and credit cards
  • Keep balances on revolving accounts low
  • Rebuild credit slowly by obtaining credit and paying it off each month

You can rebuild your credit score after bankruptcy with time and hard work. In many cases, people are able to rebuild their credit faster by filing bankruptcy than by continuing to struggle with their debt problems.

How a Massachusetts Bankruptcy Attorney Can Help You

If you have questions about whether bankruptcy is right for you, call Logan A. Weinkauf, P.C., for a consultation with a Massachusetts bankruptcy attorney. We are here to help you with debt relief solutions so that you can recover and rebuild after a financial crisis.

About the Author
Logan represents individuals and small businesses in the U.S. Bankruptcy Courts in Boston, Worcester, Springfield, and nearly every county court in Massachusetts. He approaches each case with empathy for the people behind the case. He works efficiently to deliver cost-effective solutions. He has advised people and businesses on creditor and debtor matters across diverse areas of law, including corporate law, real estate, and family law issues. This puts Logan at the leading edge of debtor’s rights, asset protection, and litigation. Logan is a trusted advisor to individuals, families, entrepreneurs, and business owners.