To understand the bankruptcy alternatives and the bankruptcy choices, you first need to realize that there are three basic kinds of debt:
Secured Debt – These creditors have been given a security interest in a property you own, a house, a car, the big screen TV, the jewelry you bought your honey. If you don’t pay, they get to foreclose, repossess, sieze, or otherwise legally take the property.
Priority Debt – These are debts that are unsecured, but they are not dischargeable because they have a special status under the law. Typical priority debts are recent income taxes, and child and spousal support. There are other priority debts such as wages you owe to someone during the last 90 days.
Unsecured Debt – These are those debts like credit cards, personal loans, payday loans, cash call internet loans and the like. Also unsecured debt are those obligations from accidents due to negligence and contractual damages from breach of a rental agreement or a business lease. Unsecured business debt can arise from many sources. These creditors only had the promise to pay and when you can’t pay, their only recourse is to sue you and attempt to execute any judgment against your assets. Garnish your wages or your bank account.
So those are the three basic types of debt and then, there are student loans ….
Student Loans – Yep, Student Loans are not priority debt, but they are non-dischargeable for life. For life – the only two things that have a lifetime statute of limitations are murder and student loans. Armed Robbery is only 20 years!
Now creditors can object to the discharge of your debt so no big cash advances, luxury purchases, or the like in the year before you file Please!
Non-dischargeable Debt – Creditors can object to the discharge of your debt if it was obtained by Fraud. This Civil Fraud requires several findings, particularly that you had no intention of paying the debt at the time that you incurred it. Typically, large cash advances or luxury purchases just before you file bankruptcy are challenged by creditors. Personal Injury damages from a drunk driving accident can be non-dischargeable but damages from the typical negligent accident are dischargeable.
However, Creditors need to be careful about objecting to your discharge if we represent you. Creditors who challenge the dischargeability of a consumer debt and lose have to pay the Debtor’s attorneys fees. We vigorously defend Creditor actions on behalf of our clients. We have won substantial attorneys fees in several of these cases. For example, Bad Boys Bail Bonds had to pay our firm over $23,000.00 in attorney fees for a non-dischargeability action they brought against a mother who posted a bond for her son who later failed to appear at trial. Some other non-dischargeable debts don’t require an objection by the creditor. Examples of these are fines or restitution orders.
So the best bankruptcy alternative for you will depend on what kind of debts you have to deal with. If all you have is credit cards and personal loans, then a Chapter 7 may give you 100% of the debt relief you need. If you have some old dischargeable taxes, are behind on your car loan, have back support or recent taxes to pay, plus some unsecured debt, then a Chapter 13 can be a solution that solves all your debt problems.