Filing for Chapter 7 bankruptcy can be an effective way to eliminate a variety of unsecured business or personal debts. In some cases, you may receive a discharge without losing assets such as positive equity in your Tennessee home. Let’s take a look at some specific reasons why you may want to pursue a liquidation bankruptcy.
Put an end to creditor collection activities
Typically, you’ll receive a stay of debt collection activities as soon as a judge receives your bankruptcy petition. Once the stay goes into effect, creditors are no longer able to call, write letters or file lawsuits in an effort to collect a past-due balance. Furthermore, they are not able to garnish your wages, repossess property or foreclose on your home. A bankruptcy law professional may be able to provide more insight into the potential benefits of this automatic stay.
Are you capable of paying down your debts in a timely manner?
As a general rule, you should file for bankruptcy if you don’t think that you can repay your debts within five years. Alternatively, it may be in your best interests to seek protection from creditors if your debt payments are more than half of your monthly income.
Don’t deplete exempt assets to pay your bills
Generally speaking, retirement funds are exempt from creditors in a bankruptcy proceeding. Therefore, it’s rarely a good idea to take a withdrawal from an IRA or a loan from your 401(k) to pay a past-due car note, mortgage payment or credit card bill. Furthermore, you’ll need to pay income taxes on any funds taken out of a retirement account, and the IRS will likely impose a 10% penalty if a withdrawal occurs before you reach age 59 ½.
If you’re having trouble paying your debts in a timely manner, it may be to your advantage to file for Chapter 7 protection. An attorney will be able to further discuss the potential benefits of filing and describe the process of doing so.