Texas residents who are unsure about how they will pay down their debt balances may start thinking about filing for bankruptcy. In fiscal year 2018, there will an estimated 733,000 companies and individuals doing so, which is up from 685,000 in 2017. According to the Federal Reserve, Americans had a total of more than $1 trillion in credit card debt at the close of 2017. They also carried a $1.2 trillion in auto loan debt and $1.4 trillion in student loan debt.
While there are many options that people could use to stave off bankruptcy, it may not be in their long-term interest to do so. For example, using money from a 401(k) account to repay a credit card or other type of debt is usually not a good idea. This is because such accounts can be off-limits to creditors in a bankruptcy case. Penalties can apply to those who are younger than 59 1/2.
Prior to filing, debtors should read about state bankruptcy laws as they can be different than federal law. As a general rule, Chapter 7 bankruptcy is used by those with few assets and can discharge many unsecured debts quickly. Chapter 13 bankruptcy is usually reserved for those who don’t qualify for Chapter 7 protection or for those who want to keep assets like a house or car.
Filing for bankruptcy can be an effective way to have debts discharged in part or in whole in a timely manner. During a bankruptcy cases, creditors are generally barred from calling about a debt or making other attempts to collect it. This may allow a person enough time to sell property and pay off a debt before a repossession or foreclosure can occur. It may also be possible to renegotiate the terms of a secured loan.