For many people, the thought of filing for bankruptcy is a scary one. However, for many people, filing for bankruptcy is the best thing they could do for their finances. Filing for bankruptcy allows you to wipe your slate clean and discharge most of your unsecured debts, but it does come with some consequences. Filing for bankruptcy might make your life more difficult in the future, by making it harder to borrow money, lowering your credit score or even affecting your insurance rates. It can be difficult for some people to gauge whether or not bankruptcy is in their best interests, which is where a skilled Texas bankruptcy lawyer can help.

Your Debts Far Exceed Your Income

Think about all of your different types of debt: your mortgage or rent, car payment, all of your different credit cards, and personal loans. How much total debt do you have? Now, think of your income. How much money do you bring in each month? If your monthly debt obligations are much higher than the amount of money you bring in, you may want to consider filing for bankruptcy.

For most people, filing for bankruptcy is a last resort. It can be easy to dig yourself into a pit of debt that you are unable to climb out of. Once the bills start becoming due, it can feel like an ocean wave washing over you, with you struggling to stay above water. Not paying your bills can cause creditors to resort to collections actions, such as wage garnishment and repossession. Once you file for bankruptcy, however, all of those collections actions must stop. This is what is known as the automatic stay.

Understanding the Automatic Stay

The automatic stay is a provision in the U.S. Bankruptcy Code that temporarily halts collections attempts from all creditors. The automatic stay goes into effect immediately after you file for bankruptcy and prevents any and all creditors from contacting you about debts you may have with them. The automatic stay does not last forever. As soon as your bankruptcy case is finished, the automatic stay is lifted.

Bankruptcy can be a scary word and it can be even scarier if it is something you have been considering. Bankruptcy is still considered by some to be a taboo or something to be avoided at all costs. In reality, bankruptcy can be the best option for some people who are drowning in debt. Filing for bankruptcy does come with a few unfavorable consequences, which should be factored into any consideration when determining whether or not to file for bankruptcy. Speaking with a skilled Texas bankruptcy lawyer can help you understand your situation a little better.

To File Or Not to File?

It can be confusing to know whether or not you should file for bankruptcy. Every person’s situation is different, which is why every decision to file for bankruptcy is different. For the most part, you should consider filing for bankruptcy if you are unable to repay your debts after you have paid for necessities such as food, living expenses, and healthcare. However, there are a few other situations in which you may also want to consider filing for bankruptcy:

If you want to keep your vehicle and still pay on its loan, file a Chapter 7 case to write off other debts and reaffirm the vehicle loan.

A Vehicle Loan is a Secured Debts

We started this series of blog posts on debts by introducing secured debts as follows:

Each of your debts is either secured by something you own or it is not. A secured debt is backed up by a lien, a legal interest of the creditor in some kind of property of yours. See Section 101(37) of the U.S. Bankruptcy Code.

Here are examples of the reaffirmation of a secured debt (like a vehicle loan) in a Chapter 7 case vs. addressing it in a Chapter 13 case.

The last blog post was about when to reaffirm a secured debt under Chapter 7 and when to handle that under Chapter 13 instead. This kind of comparison of options can get a bit dry. So today we’re demonstrating how it really works with some examples. We change the facts a few times to show when each of these two options makes more sense.