What Is Bankruptcy And Will It Wipe Out All My Debts
Sep 14, 2020
Bankruptcy occurs when an individual cannot pay their bills and files bankruptcy to get a new start financially. You have a right to file bankruptcy and that right is enshrined in federal law. All bankruptcies are processed in federal court.
If you are filing for bankruptcy as a debtor under Chapter 7 or Chapter 13 you may get:
- Extra time to pay bills (provided you have a regular income)
- To keep most or all of your property which may have been lost to creditors
- Most or all of your bills wiped out
There are two kinds of bankruptcy proceedings that individuals typically file:
- Chapter 7 bankruptcy — where you file a petition asking the court to discharge your debts. Wiping out your debts is typically in exchange for you giving up your property – except for exempt property. Generally, much of and sometimes all of your property may be exempt. Exempt property is property that you can protect and keep. That which is not exempt is sold and the proceeds from sale are paid to your creditors.
- Chapter 13 bankruptcy – in this proceeding, you file a plan demonstrating how you intend to pay off some of your overdue and current debts over a period of three to five years. Once the plan is completed, the unpaid balance on some debts may be wiped clean. In a Chapter 13 bankruptcy you can likely keep your property, such as your house.
- Typically, those who choose Chapter 13 when they file for bankruptcy own their house and are close to losing it, are behind in paying bills but could catch up with some time and have a regular source of income, a job, public assistance or social security.
The costs of filing bankruptcy
In Pennsylvania, the filing fee for a Chapter 7 bankruptcy is $335 and $310 for a Chapter 13 bankruptcy. It may be possible to pay the filing fee in installments. If your income is below the poverty line the filing fee in a Chapter 7 may be waived.
Does declaring bankruptcy erase all my debts?
All debts are wiped out in a Chapter 7 bankruptcy except:
- Secured loans (I.e. mortgage on your home, or your car payment)
- Loans obtained via fraud or providing false information to a creditor
- Debts not listed on your bankruptcy petition
- Child support, fines, settlements, alimony, some taxes, criminal restitution and a few limited types of debts
- Student loans
- Debts assumed to pay taxes
- Debts for DWI or deaths
- Debts incurred as a result of willful and malicious harm
What gets paid in a Chapter 13 bankruptcy?
The thing to remember is that each debt goes into a different category; a category in which the debt must be paid and a category in which it can be discharged.
The two categories are “secured” and “unsecured” debt. This means the secured category debts are backed by and guaranteed by collateral. The unsecured category debts are not backed or guaranteed and a creditor cannot take property if you do not pay. This category further breaks down into priority and nonpriority unsecured debt.
Priority unsecured debts get paid before nonpriority unsecured debts and are not discharged. Non priority unsecured debts may get paid if there is money leftover. However, in many cases the left over debt is wiped out.
Declaring bankruptcy is a big decision and it is best to discuss your situation with an experienced bankruptcy attorney at Melaragno, Placidi & Parini. Find out what your rights are, how the process works and what Chapter may be the right one for your circumstances.
Contact Melaragno, Placidi & Parini about any concerns you have in attempting to determine which Chapter of bankruptcy makes the most sense for you and how you wish to proceed. We are here to help.