For many people in debt, filing for bankruptcy is a last resort. While this can be an incredibly beneficial option in alleviating debt, many are actually unsure of how this process works, including which debts are prioritized and which are eligible for discharge. As such, if you are in debt and interested in filing, the following blog explores what you should know about what debts are considered a priority and the steps you can take prior to filing to help you navigate this process with ease. Additionally, you’ll learn why working with a Montgomery County bankruptcy lawyer is in your best interest during these complex matters.
What Are My Bankruptcy Options as a Consumer?
Typically, if you are a consumer looking to declare bankruptcy, the first step you’ll need to take is to determine which option is best for your needs. Consumers typically have two choices – Chapter 7 or Chapter 13.
Chapter 7 bankruptcy is a shorter liquidation process. As such, your non-exempt assets will be seized and sold by the trustee assigned to your case to repay your creditors. When all assets have been sold, you may find that the remainder of your eligible debts can be discharged. However, you must be eligible to pursue this chapter by passing a means test to compare your income to that of other similarly sized households in your state.
Chapter 13 bankruptcy differs in that it is a reorganization plan. As such, the trustee assigned to your case will reorganize your debts, and you will begin a monthly repayment plan. Unlike Chapter 7, your assets will not be liquidated, as this process is dependent on your disposable income. However, the plan can last three to five years, making it a complex and extensive process.
What Makes a Debt a Priority?
When you file for bankruptcy, it’s critical to understand that all creditors are treated equally. However, not all debts are equal during this process.
During bankruptcy, debts are prioritized., meaning certain debts must be paid first during this process. Generally, a priority debt is anything that carries serious impacts if left unpaid, like your rent or child support. As such, these debts are generally paid in full first bore other creditors can begin receiving funds.
Understanding what debts are a priority can help ensure you understand what you can expect during bankruptcy, while giving you a better idea of what to expect once bankruptcy is complete.
What Do Before Filing for Bankruptcy?
One of the most important things you can do prior to filing for bankruptcy in Pennsylvania is to gather all documents related to your debts, assets, income, and expenses. Not only can this help make the process of filing easier, but it can also ensure that your debts are prioritized correctly.
You should also avoid making any repayments to creditors in the weeks and months leading up to your filing. This is because it could be viewed as a preferential payment as it places one creditor at an unfair advantage over the others. As such, the court can actually “claw back” these payments to be part of your bankruptcy estate so they may be distributed to creditors in the priority order.
As you can see, bankruptcy can be an incredibly stressful and complex process, which is why it’s imperative to connect with an experienced attorney with Mudrick & Zucker, P.C. Our dedicated bankruptcy attorneys can help guide you through this process to ensure you can reap the full benefits of bankruptcy. When you need help, contact us today to learn more.
