Do I Have to File Bankruptcy?
When an unexpected layoff at work or a serious illness creates an overwhelming financial crisis, people may be left asking themselves: “Do I have to file bankruptcy?” The answer is never ‘Yes, I have to file.” Sometimes there are good non-bankruptcy alternatives. Sometimes (but rarely) doing nothing is the best alternative. And sometimes filing for bankruptcy protect is the best of the alternatives.
A consultation with a bankruptcy lawyer offers the perspective of someone with experience offering assistance to people overwhelmed by debt and financial challenges. People consulting with legal counsel about a bankruptcy may be offered other effective options for resolving debt issues.
Bankruptcy Options for Consumers
The most common bankruptcy options for consumers are Chapter 7 and Chapter 13. Chapter 7 may be the one that comes to mind when people think about bankruptcy.
A trustee appointed by a bankruptcy judge takes control of a debtor’s assets and sells them. Money received through the sale is applied toward reduction of the debts owed by the person filing for bankruptcy. The end result is that debts remaining are discharged to give the debtor a fresh start.
The downside of Chapter 7 for a debtor with many assets is that may not be totally are exempt. Even though the proceeding is federal, Virginia law limits available exemptions that would protect assets from seizure by creditors or in a bankruptcy. The following are some of the exempt assets under Virginia law:
- Equity in property used as a primary residence may be protected up to $25,000 plus $500 for each dependent in the family. Disabled veterans and anyone 65 years of age and older may claim an exemption of as much as $10,000.
- Wedding and engagement rings.
- Personal clothing with a total value of $1,000 or less.
- Household furnishings not exceeding a total value of $5,000
- A car or other motor vehicle with a net (after deduction the claim of the properly secured creditor) value of $6,000 or less. (Secured creditors always have the right to the asset over the rights of the bankruptcy trustee and the debtor.)
The other bankruptcy option for consumers with steady incomes is a Chapter 13, which offers consumers the opportunity to repay their debts under a court-approved plan. At the end of the three to five year duration of the plan, any balance remaining on otherwise dischargeable debts is discharged.
Both Chapter 7 and Chapter 13 bankruptcy options have eligibility requirements that debtors must meet, so a bankruptcy law firm should be consulted.