Lawfirm.com asked a panel of experts to weigh in on how to navigate bankruptcy. Rutgers Law Professor Chrystin Ondersma, author of Dignity, Not Debt: An Abolitionist Approach to Economic Justice, shared her perspective on some of the most pressing bankruptcy questions.
What should people know about filing for bankruptcy — either for themselves or a business — and the impact it can have in the future?
You can file for bankruptcy. File under Chapter 7, which offers relief, but avoid Chapter 13, which doesn’t work for most people. In Chapter 13, you only get relief after making payments for at least three years, and many people aren’t able to complete the plan payments.
Some people do successfully use Chapter 13 to catch up on missed mortgage payments, but if you’re not in default on your mortgage and you’re eligible for Chapter 7, Chapter 7 is usually a quicker path to relief.
When you file for bankruptcy, creditors can no longer call and harass you for payment, take you to court, or garnish your wages. There are some exceptions, such as child support or alimony.
Bankruptcy also pauses foreclosure and repossession actions and gives you more options to keep property that might otherwise be foreclosed or repossessed.
Under Chapter 7, you agree to give up certain so-called “non-exempt” assets in exchange for a prompt discharge of most debts. Most people who file for bankruptcy do not have any non-exempt assets.
For example, your household furnishings, a low-value car, or computer — you can usually keep these things and still have your debt discharged.
It’s a bit more complicated when secured creditors like your mortgage lender or auto lender are involved. You may be able to keep your home if you aren’t in default or if you are able to catch up on payments.
Bankruptcy can provide some breathing room to make up missed payments over time, and you can usually keep your car if you keep making payments. If you’ve missed payments, you may have other options, such as making a lump-sum payment for the value of the vehicle rather than the entire loan balance.
Exactly what happens depends on what state you’re in. Bankruptcy is a federal system but what property you can keep varies from state to state. What assets you have, how much they are worth, and what lenders are involved all play a role, so you should discuss specifics with an attorney.