Determining the right time to file for bankruptcy

In Maryland and across the United States, people experiencing heavy debt may want to file for Chapter 7 bankruptcy. Chapter 7 and Chapter 13 offer two types of bankruptcy for people facing serious financial challenges. A person who files Chapter 7 bankruptcy liquidates all unsecured debts, which means that the debtor no longer owes money to their creditors.

Chapter 7 bankruptcy may also include any non-exempt equity the person may have in a property or vehicle for the purpose of paying back creditors. The entire procedure is completed within three to six months. However, a person must take a “means” test before filing. The first half of the test considers the debtor’s earnings and compares them to the average income of similar households. A person who is living below the median has the option to file.

A person filing Chapter 7 bankruptcy may not have the option to finance a car. If a person buys a car during Chapter 7 proceedings, there is a chance that the creditor will not receive their money. However, a person filing Chapter 13 bankruptcy may have a chance to finance a vehicle simply because this type of bankruptcy refinancing involves a lengthier process. Debtors who earn too much money have the option to file for Chapter 13 bankruptcy.

One common mistake is to pay creditors by withdrawing funds from an Individual Retirement Account (IRA). In the majority of cases, a person filing Chapter 7 bankruptcy is not required to relinquish IRA monies. An individual who does not have the financial ability to cope with their expenses may want to speak with a bankruptcy lawyer to learn about their options. This conversation may yield helpful information for the debtor.