Is it a good idea to file for bankruptcy?

People who are having trouble paying their debts may find bankruptcy a viable option to start over.

Many people in Ohio find themselves walled in by debts that they don't know how to pay. As a result of their financial struggles, they may be looking to bankruptcy as a way out. Depending on the type of bankruptcy that people choose, their debt payments could be delayed or even discharged entirely.

Types of bankruptcy

There are three main types of bankruptcy that people can choose to file for. In Chapter 13 bankruptcy, the person's debt is restructured. Through this process, the creditors and the court negotiate a three- to five-year payment plan where the person agrees to use a specified portion of earnings to repay the creditors. This type of bankruptcy allows debtors to continue owning their assets.

Chapter 11 bankruptcy also allows a payment plan to be negotiated between creditors and debtors. It can take up to a year for a reorganization plan to be approved, which gives debtors time to try to improve their financial situation and keep their assets. Used mostly by businesses and companies, it is possible for some people to also seek Chapter 11 protection.

The most common type of bankruptcy is Chapter 7. Businesses who declare this type will essentially close, have their assets liquidated, and then pay the money they receive from that liquidation to their creditors. However, businesses should understand that if the amount paid is not enough to clear the debt, they will still owe the balance to the creditor. On the other hand, people who are declaring this type of bankruptcy can have their debts completely discharged once the sale of their property is completed. Any assets that are protected under the state's exemption statutes, or that contain no equity, can also be retained. While most types of debt can be forgiven under Chapter 7, there are some that are not eligible.

Bankruptcy protects people

People find themselves owing money for a number of reasons. They may have loans from banks, health care costs, or they may owe money for time spent in prison. All of these debts can be discharged when Chapter 7 bankruptcy is filed.

In a recent case in Minnesota, a county asked the bankruptcy court to dismiss a debtor's submission of a debt for over $3,000 in incarceration costs. The debtor was filing for Chapter 7 bankruptcy. The court examined the request and determined that the amount was not a payment ordered by the criminal court as part of the person's sentencing. Therefore, the amount was allowable under the U.S. Bankruptcy Code.

Sometimes people find themselves with few options for paying their debts. Filing for bankruptcy may help them start fresh. Still, deciding whether they should file can be difficult. People in Cuyahoga Falls who are considering this path may want to seek the advice of a local attorney who practices bankruptcy law.