Anyone can encounter financial struggles, and those who are unable to pay all of their bills temporarily or on a long-term basis may accrue significant debts. This may lead to additional financial difficulties as creditors begin to take action to collect debts, and getting behind on mortgage payments may put a homeowner at risk of foreclosure. This can be a much more serious consequence, since it could result in the loss of a family’s home. There are a number of options that may allow a person to prevent foreclosure, and debtors will need to understand whether filing for bankruptcy may be a good solution.

Stopping Foreclosure Through Bankruptcy

In cases where a lender has begun the foreclosure process, bankruptcy can offer some immediate relief by putting a halt to these proceedings. As soon as a bankruptcy petition is filed, the bankruptcy court will issue an automatic stay regarding all debt collection practices. This means that creditors will be prohibited from taking any actions against the debtor while the bankruptcy case is ongoing. In addition to stopping the foreclosure process, a creditor will not be allowed to contact the debtor and seek repayment of debts. Other creditor actions, such as repossessing a vehicle or seeking a legal judgment that will allow for the garnishment of a debtor’s wages, must also cease.

While filing for bankruptcy can temporarily halt a foreclosure, it may not offer a permanent solution, and a person will need to determine how to address mortgage debt during the bankruptcy process. In Chapter 7 bankruptcy cases, a debtor may be able to eliminate certain debts, although some of their assets may be liquidated to repay creditors. However, exemptions may apply, including a homestead exemption that will apply to a certain amount of equity in the debtor’s home. In Rockland County, New York, the current amount of the homestead exemption is $179,975. By exempting this amount of equity and eliminating other debts, the debtor may be able to continue owning their home. However, they will typically need to reaffirm their mortgage loan, pay off the delinquent amounts and any applicable fees, and continue making mortgage payments after completing the bankruptcy process.

For people who have significant debts, bankruptcy may be the best option for addressing their financial issues and ensuring that they will be able to meet their ongoing needs. Bankruptcy is a form of debt relief that is available to all Americans, and it may allow multiple different types of debt to be discharged, meaning that a debtor will not be required to repay the amounts owed, and creditors cannot take any actions to collect money from a debtor. Multiple different types of debts may be discharged through bankruptcy, including credit cards and medical bills. Secured debts such as a home mortgage or auto loan may also be discharged, although this will typically result in a foreclosure or the repossession of property. However, debtors should be aware of different types of debts that cannot be discharged through bankruptcy. These include:

• Domestic support obligations - If a person is required to pay child support to ensure that their children’s needs will be met, or if they were ordered to pay spousal maintenance (alimony) following their divorce, these obligations will remain in place. In addition to making ongoing payments as required, a person will be required to make up any payments that have been missed, and interest may be charged for these past-due amounts. While bankruptcy cannot eliminate these obligations, it may provide a person with funds that would otherwise have been used to pay off other debts, ensuring that they can meet their ongoing requirements.

• Most tax debts - If a person owes money to the IRS, they will usually only be able to discharge debts from at least three years before they filed for bankruptcy. Failure to file tax returns on time may disqualify these debts from being discharged.

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There are many situations where debts can affect a person or family, making it difficult or impossible to maintain financial stability. When debts become overwhelming, bankruptcy can provide relief by eliminating certain types of debts and giving a person a fresh start. When filing for bankruptcy, a person’s disposable income will be one of the primary factors that will be considered. Understanding how disposable income is calculated and how it will affect a bankruptcy case can help a person determine the best ways to proceed as they work to pursue relief from their debts.

How Disposable Income Affects the Means Test in a Chapter 7 Bankruptcy

For many debtors, Chapter 7 is the preferred type of bankruptcy, since it can be completed fairly quickly, and it will usually allow unsecured debts (such as credit cards or medical bills) to be discharged completely. However, before they can file for Chapter 7, a person will need to pass a “means test.” The first part of the means test compares a person’s income to the median income in their state. If their income is less than the median income for their family size, they can file for Chapter 7.

If a person’s income is higher than the median income, the means test will look at their disposable income to determine whether they will be able to file for Chapter 7 bankruptcy. Disposable income is calculated by taking the average income a person earned from all sources over the previous six months and deducting certain types of expenses, including taxes, living expenses, healthcare costs, transportation costs, life insurance premiums, and domestic support obligations such as child support. If a person’s disposable income over the next five years (their monthly disposable income times 60 months) is lower than 25 percent of their total unsecured debts, they will be able to file for Chapter 7 bankruptcy.

If you have large debts, and you have experienced financial difficulties that have affected your ability to repay what you owe, you are likely to be concerned about how to handle these issues. If you default on your mortgage or fail to make payments toward an auto loan, you may be facing foreclosure or the repossession of your vehicle. Fortunately, you have options for debt relief, including filing for bankruptcy. However, you may be uncertain about how bankruptcy will affect loans for your home and vehicles, and you will most likely want to determine how you will be able to avoid the loss of your property. In these cases, Chapter 13 bankruptcy may be your best option. By understanding how different types of debts will be handled in this type of bankruptcy, you can ensure that you will be able to achieve an outcome to your case that will protect your financial security.

Chapter 13 Repayment Plans, Lien Stripping, and Cramdowns

In a Chapter 13 bankruptcy, you usually will not be required to turn over any property you own, so this may be the best option to ensure that you can avoid the loss of your home, vehicles, or other items. During the bankruptcy process, a repayment plan will be created that will last between three and five years. The amount you pay will be based on your disposable income, or the amount that is left over after you pay your regular living expenses and make payments toward secured debts such as your mortgage or auto loans. After completing the repayment plan, your unsecured debts (such as credit cards or medical bills) will be discharged. If you make all required payments toward secured debts while also making all payments in the repayment plan, you will be able to retain ownership of your property.

If you have gotten behind on payments on secured debts, the missed payments and any related fees may be included in your Chapter 13 repayment plan. This will ensure that you will be able to become current on payments toward these loans. Some other options may also be available to reduce or eliminate certain debts. These include:

Businesses sometimes run into financial trouble because they are not bringing in enough income to support the expenditures. When a business has insurmountable debt and cannot find another way to raise capital or increase income, it may be best to file for bankruptcy. There are several different types of bankruptcies, and depending on how the business is organized, the business may have more than one option to choose from.

Chapter 11

Businesses can file for Chapter 11 bankruptcy if they wish to reorganize their debt and set a payment plan to repay all their creditors. This can be a good plan if the business expects to raise its revenue in the future and selling its current assets in another form of bankruptcy will result in bigger losses. After the initial filing, the business remains under the control of the owners. However, a trustee may be appointed if there is an allegation of management or fraud.

Chapter 11 bankruptcy presents some advantages to the business in that it can void existing contracts, including contracts with employees and suppliers. However, the business is also closely monitored during the bankruptcy process, and cannot make any moves, like selling off major assets, without court approval.