There are different reasons why we may become saddled with debt. Sometimes, it is because we take out loans for necessary expenses. Other times, it is through no fault of our own. For example, we may incur debt because of unanticipated medical expenses or because someone else applied for credit cards in our name. Regardless of the reason, if you owe debt that you can no longer pay off, you have options. One option is to file bankruptcy. Bankruptcy is a legal process meant to give people a fresh start by relieving burdensome debts. There are two types of bankruptcy for the average person: Chapter 7 and Chapter 13. Do not be confused by the names of the two bankruptcies. They simply refer to the chapter in which they are found under in Title 11 of the United States Code.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as a “liquidation” bankruptcy. In a Chapter 7, your assets are liquidated, or sold off, to repay back the people or companies you owe money. Although this sounds scary, in the large majority of cases, your attorney can protect all of your assets from liquidation. After your bankruptcy goes through court, most of your remaining unpaid debt will be discharged and no longer collectible by the people or companies you owe money.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is essentially a court-supervised payment plan. Before you file your Chapter 13, you will create a payment plan with your attorney and submit it to the court for approval. Once approved by the court, you will follow the terms of your payment plan. At the conclusion of your plan, all remaining debts that are dischargeable will no longer be your responsibility. The benefit of a Chapter 13 is that you will not be charged late fees or interest on any of your debts. In addition, none of your assets will be liquidated.
Dischargeable debts are debts that can be wiped out by your bankruptcy discharge. However, not all debts are dischargeable. The most common types of dischargeable debts include credit cards, medical bills, payday/personal loans, or utility bills. Certain categories of back taxes owed to the government can also be dischargeable. Student loans under extremely rare circumstances may also be dischargeable.
Nondischargeable debts are those debts that cannot be wiped out because of public policy reasons. Some common examples of nondischargeable debt include child support, criminal fines and penalties, the large majority of student loans, and debts acquired by fraud. Again, certain categories of taxes may not be dischargeable.
A unique aspect of bankruptcy law that applies to Soldiers is how a bankruptcy filing may affect the Soldier’s security clearance. A Soldier is not automatically disqualified from obtaining a security clearance just because he or she filed bankruptcy. Each case is considered on its own merits, and there is no formula that the security officer uses when determining whether to revoke a Soldier’s security clearance or not. The concern recognized by the security officer is that Soldiers who are financially unstable and potentially irresponsible are prone to money bribes. But on the other hand, filing for bankruptcy can be seen as a positive step towards wiping out legitimate debts. For example, if a Soldier incurred debt because of an unforeseen medical emergency and then files bankruptcy, his or her security clearance is unlikely to be at risk. However, if a Soldier is a reckless gambler and incurred gambling debt, he or she may risk losing security clearance if a bankruptcy is filed.
Bankruptcy can be a beneficial process to help you erase your old debts and allow you a fresh financial start in life. Consider speaking with an attorney if you desire additional information about the bankruptcy process. You may contact the Fort Irwin Legal Assistance Office at 760-380-5321. The office is open 9 a.m.-4 p.m., Monday, Tuesday, Wednesday and Friday, and 1-4 p.m., Thursday. The office is located in Bldg. 230.