What happens if I declare bankruptcy? This bankruptcy question is one of the most frequently asked questions about bankruptcy. However, instead of knowing what “happens” when they file bankruptcy, many people actually want to know about the downsides of filing bankruptcy.
Filing bankruptcy is the first step on the road to financial recovery. Recovering from a financial hardship can be overwhelming. But, with the help of the bankruptcy court, you could be on your way to rebuilding your financial wellbeing in under six months when you file a Chapter 7 bankruptcy case.
Our Madison bankruptcy lawyer understands that filing bankruptcy might seem intimidating. At Saxton Law, PLLC, our goal is to help you eliminate debt quickly and affordably. Therefore, let’s look at several bankruptcy FAQs that address the downsides of filing bankruptcy and how those downsides might not be as intimidating as you assume.
- Pros and Cons of Filing Chapter 7 Bankruptcy in Mississippi
- Pros and Cons of Filing Chapter 13 Bankruptcy in Mississippi
- What Debts Are Not Discharged in Bankruptcy?
- Will I Lose My Home or Car if I File Bankruptcy in Mississippi?
- How Much Does It Cost to File Bankruptcy?
- What Are the Alternative to Filing Bankruptcy?
Pros and Cons of Filing Chapter 7 Bankruptcy in Mississippi
Chapter 7 bankruptcy is the quickest way to get rid of debt for many people. However, there are some downsides of Chapter 7 that need to be addressed before filing Chapter 7 in Mississippi. Let’s begin by comparing the benefits and disadvantages of filing Chapter 7:
Pros of Filing Chapter 7:
- Generally costs less to file bankruptcy under Chapter 7 than Chapter 13
- Eliminates most unsecured debts in four to six months after filing for bankruptcy relief, including credit cards, medical bills, and student loans
- The automatic stay provides temporary relief from repossessions and foreclosures to give you time to find a new place to live and another vehicle
- Protection from debt collectors, including creditor harassment, wage garnishment, levies, and debt collection actions for dischargeable unsecured debts
- Property exemptions protect the equity in various assets, including homes, vehicles, household goods, clothing, etc.
Cons of Filing Chapter 7:
- Must meet income requirements to qualify for Chapter 7 bankruptcy
- A notation that a bankruptcy was filed remains on your credit report for ten years
- You could lose some property if you have more property than just your homestead
- Some debts are not dischargeable in Chapter 7, including student loans, alimony, child support, and some debts owed to the government
Even though the disadvantages of filing Chapter 7 seem harsh, let me explain a bit more about these “cons” of Chapter 7.
First, most Chapter 7 cases filed in Mississippi are no-asset Chapter 7 bankruptcy cases. That means the debtors (the people who file for bankruptcy) keep all their property. Therefore, the Chapter 7 trustee only takes property he can sell to pay your unsecured debts.
If there is no equity in an asset, the Chapter 7 trustee does not want the asset. Equity is the amount the property is worth after subtracting liens and bankruptcy exemptions from the property’s market value.
Another common concern about filing Chapter 7 is the impact on your credit score. Unfortunately, by the time many people file Chapter 7, their credit scores are low because of late payments, over-the-limit credit lines, collection accounts, and other adverse credit information, so for many, a bankruptcy will not hurt your credit score.
Filing Chapter 7 can help improve your credit score within a couple of months after completing the bankruptcy case. Discharged debts should have a zero balance, and the creditors cannot continue to file information regarding late payments. Furthermore, collections of discharged debts cease.
Lastly, the income qualifications for Chapter 7. A Chapter 7 bankruptcy is intended for individuals who cannot afford to pay their debts. Whether you can pay your debts is determined in one of two ways:
- Your household income is below the median income for a household of the same size in Mississippi, OR,
- Your disposable income is a negative number or below a specific amount. Disposable income is the money you have each month after paying allowed expenses and bills.
If you want to explore Chapter 7 as a way to get out of debt, don’t trust the bankruptcy calculators you find online. These calculators do not consider all relevant factors that could help you qualify for Chapter 7. Instead, contact our office for a free bankruptcy consultation with an experienced Madison bankruptcy attorney.
A Chapter 13 bankruptcy is a court-supervised repayment plan. You pay a Chapter 13 trustee each month. Advantages and disadvantages of filing Chapter 13 in Mississippi include:
Pros of Filing Chapter 13:
- Stop foreclosures, repossessions, wage garnishment, levies, and debt collections
- Can keep your home and car by catching up on past payments over three to five years
- Only pay a percentage of your unsecured debts to get rid of the entire amount of debt
- Catch up past alimony and child support payments through your plan
- Pay income tax debt and other debts owed to the government through the Chapter 13 plan
- Protects assets with equity from being used to repay unsecured debts
Cons of Filing Chapter 13:
- Takes three to five years to complete a Chapter 13 plan
- Have a wage order for monthly payments to the Chapter 13 trustee
- Cannot sell major assets, such as your home, without court approval
- Does not get rid of student loans
- Cannot incur debt without court approval, such as a new car loan or mortgage
- A temporary decrease in your credit score
- A notation that a bankruptcy was filed remains on your credit report for seven years
The most significant “disadvantage” many people experience in Chapter 13 is paying monthly payments to a Chapter 13 trustee for five years. However, this “disadvantage” is not as terrible as it sounds. For example, you could lower your car payment by filing Chapter 13. Then, depending on the circumstances, you could lower the amount you owe on your car. Likewise, if you owe more money on your first mortgage than your home is worth, you might be able to value a second mortgage at $0 (it becomes an unsecured debt instead of paying it in full).
Also, filing Chapter 13 lets you repay debts that would not be dischargeable in bankruptcy over time. For example, you can spread out debts such as income taxes and past due domestic support and mortgage payments over five years.
If you want to discuss filing Chapter 13, call our office to schedule a free consultation with our bankruptcy attorney in Madison, MS.
What Debts Are Not Discharged in Bankruptcy?
Bankruptcy discharges most debts. A creditor cannot take any action to collect a discharged debt. However, some debts are not dischargeable in a bankruptcy case. Those debts include:
However, as discussed above, most of these debts can be paid in full through a Chapter 13 bankruptcy case. Therefore, a Chapter 13 bankruptcy plan can make it affordable to repay these debts because you are not paying your unsecured debts in full.
Secured debts are not discharged in bankruptcy unless you surrender the collateral. For example, filing for bankruptcy does not get rid of your mortgage or car loan. You must pay the debt to keep the property. However, if you surrender the items, the creditor cannot try to collect more money from you if selling the asset does not pay the loan in full.
Some student loans and old tax debts can be discharged, depending on the circumstances. Call our office to speak with a member of our legal team to find out more about how you can get rid of your debts.
Will I Lose My Home or Car if I File Bankruptcy in Mississippi?
When you file bankruptcy in Mississippi, you claim bankruptcy exemptions to protect the equity in your property. Most people must use the Mississippi bankruptcy exemptions and the allowed federal bankruptcy exemptions. The Mississippi state legislature sets the specific dollar amounts you can claim exempt in an asset.
Mississippi bankruptcy exemptions include, but are not limited to:
Let’s look at an example. If your home is worth $250,000 and you owe $200,000, there would be no equity in your home after applying the $75,000 Mississippi home exemption.
Most people who file for bankruptcy relief keep their property. Our Madison bankruptcy lawyer carefully reviews your assets to analyze the value and available bankruptcy exemptions. The market value of an asset may be different from what you believe the item to be worth. Discuss your concerns with a bankruptcy lawyer before deciding to file bankruptcy.
How Much Does It Cost to File Bankruptcy?
The cost of filing bankruptcy may not be as expensive as you assume. The typical costs of filing for bankruptcy can be found here: https://bankruptcy-fees/
Bankruptcy attorneys set their fees. However, remember that you get what you pay for when hiring an attorney. The least expensive attorney may not have the bankruptcy experience necessary to protect your best interests throughout the case.
At Saxton Law, PLLC, we work with clients to make filing bankruptcy affordable. Our initial consultation is free of charge, so it does not cost you anything to get the bankruptcy advice you need to decide what to do.
What Are the Alternative to Filing Bankruptcy?
There are alternatives to filing bankruptcy. Some individuals might choose to work with a debt settlement company or make lump-sum payments to creditors to settle debts. However, each of these options has risks. Some risks involved in debt settlement include:
- Creditors are not required to work with debt settlement companies
- Some creditors may not be willing to negotiate lower payments or decrease interest rates
- Your creditors can change their minds at any time to pursue debt collection lawsuits, wage garnishments, and other collection activities
- Any debts written off by creditors may become taxable income, which could substantially increase your income tax debt for that year
- Borrowing against your home to pay off debts could put your home at risk
- Using retirement savings to pay off debts means that you use exempt assets to pay off debts you could discharge in bankruptcy
- Debt settlement companies may charge high fees
- You might pay a debt settlement company for years, but still end up with judgments from some creditors
- Some debt settlement companies are scams
Filing a Chapter 7 bankruptcy case could get rid of your debts without paying any money toward the debt. If you file under Chapter 13, you know that your debts are discharged when you complete the Chapter 13 plan. Your creditors are not given a choice whether to participate in a bankruptcy case. They must comply with bankruptcy laws or face bankruptcy sanctions.
Before deciding how to handle debt problems, get the facts from a trusted bankruptcy lawyer in the Jackson metro area.
Contact Us for a Free Bankruptcy Consultation with a Madison Bankruptcy Lawyer
You do not have to face debt problems alone. Our legal team at Saxton Law, PLLC, is here to help you. We provide experienced legal advice, support, and guidance as you consider your debt relief options. In addition, our legal team is with you every step of the way through a bankruptcy filing.
Call Saxton Law, PLLC, at 601-255-0813 to schedule your free consultation. You may also schedule a free consultation with a Madison bankruptcy lawyer online.
You may also use our free library of bankruptcy blogs and articles on our website. We answer more of your bankruptcy questions and provide information to help you understand the bankruptcy process.