Deciding to file for bankruptcy is a big step - so big that it can perhaps feel like stepping off a cliff. However, you may be surprised to feel a sense of relief once you decide to move forward. After all, bankruptcy offers the opportunity to make a fresh start. Most people think of bankruptcy as a legal mechanism that wipes out your debt. In legal jargon, this is referred to as “Chapter 7” bankruptcy or “complete liquidation.” If you’re having difficulty paying your bills and have creditors aggressively seeking payment, the opportunity to make it all go away begins to sound very attractive. However, there are situations in which Chapter 7 bankruptcy may not be your best option.
A Quick Summary of Your Options
With a few exceptions, most people have three basic options when they are considering bankruptcy:
- Chapter 7 bankruptcy. As described above, this is a “complete liquidation” of everything you own. In other words, your non-exempt assets will either be sold by the chapter 7 trustee to pay your creditors. In Minnesota, most chapter 7 cases don’t have non-exempt assets – but some do. At the conclusion of your case, any remaining debts will be wiped out - you will no longer be legally obligated to pay them.
- Chapter 13 bankruptcy. Chapter 13 bankruptcy essentially consists of a court-approved payment plan to pay off your debts over a period of time up to five years. You may or may not pay your debts in their entirety, and you may be able to keep certain assets.
- Not filing for bankruptcy. In some cases, filing for bankruptcy might not make sense for a variety of reasons. It may make sense to wait, or it may make sense to pursue other options.
When is Chapter 7 Not the Best Option?
It’s important to note that everyone has different reasons for seeking bankruptcy protection and that ultimately, you have to make the right decision for you. As a result, it’s difficult to give an across-the-board answer to this question but here are some common situations where Chapter 7 may not be your best option:
- You have too much non-dischargeable debt. This means that you can’t be relieved of your obligation to pay the debt after bankruptcy. Here are the main types of non-dischargeable debt:
- Unpaid child support and alimony payments
- Student loan debt
- Income taxes less than three years past due
- Money judgments for injury or death caused by drunk driving
- Recent debts incurred to pay for luxury items
- Your creditors have a good chance of successfully objecting to their claims be discharged. When you file for bankruptcy, your creditors have the opportunity to object to how you will dispose of their claims. Creditors may successfully object and avoid discharge in the following situations:
- Debts incurred by fraud or deceit
- Debts arising from theft or embezzlement
- Debts that arose from willfully malicious conduct
- You don’t have enough assets or income to make Chapter 7 worthwhile. In these situations, the person is referred to as being “judgment proof,” meaning that there is nothing a creditor can attach to satisfy their claim. For people who are judgment proof, Chapter 7 will damage your credit and impair your ability to file for bankruptcy in the future when you may need it more.
- You have assets you may not want to give up. In a Chapter 7 bankruptcy, you are faced with the possibility of having to surrender all of your most valuable possessions. There are exceptions and exemptions that you can qualify for, but Chapter 7 may not be the best option for you if you have assets you definitely want to keep.
These are difficult questions for non-lawyers to answer as bankruptcy law can be extremely complex. An experienced bankruptcy attorney can evaluate your case and plot a course of action that best suits your goals.
If Chapter 7 Isn’t an Option, Consider Chapter 13 Bankruptcy
Many people who thought they wanted to file for Chapter 7 bankruptcy wind up filing for Chapter 13. A Chapter 13 bankruptcy case gives you greater control over your assets while protecting you from your creditors’ collection efforts. If Chapter 7 is not the right option for you, Chapter 13 may be a better fit.
Not Filing for Bankruptcy Is Always an Option
Sometimes not filing for bankruptcy is the best option. This may be because of timing - it makes more sense to file in the coming months or years - or you could pursue other options that would help you address your financial issues. Your bankruptcy attorney can help you avoid bankruptcy, yet help you get ready to file for bankruptcy if it becomes necessary.
Contact an Experienced Minnesota Bankruptcy Attorney
Filing for bankruptcy is a big decision and one that you should take very seriously. Many of the complex issues that need to be addressed often require professional advice. At Kain & Scott, we help people across the state of Minnesota tackle their financial problems and find the solution that is best for their particular situation. If you are thinking about filing for bankruptcy, let us help you through the process. We charge no fees up front and offer dedicated, high-quality legal representation on an affordable payment plan. If you would like to schedule a free consultation with one of our bankruptcy attorneys, contact us by phone at 800-551-3292 or contact us online.