When you find it impossible to keep up with the monthly expenses, along with the costs of making the payments on the different bill payments and other debts, and thus to make any savings, the best option for you would be to file bankruptcy. A person however, should not file bankruptcy without a proper reason. This is because, you are going to lose almost all of your assets, if you file Chapter 7 and you are also going to hurt your credit a lot, through the bankruptcy filing. Moreover, you aren’t even allowed to save money during bankruptcy, if the technical aspect is considered. Thus, it would always be better for you to consult a bankruptcy lawyer before filing the same.
Bankruptcy and save money options
Yes, it is true that you are allowed to live your life based on a reasonable budget, but if you can save any money during bankruptcy, it is supposed to go towards creditor payments. However, situations are supposed to be different in case of Chapter 7 and Chapter 13 bankruptcy.
In case of Chapter 7 bankruptcy, saving money is not that a complex issue. For, when you file bankruptcy, the assets which you have in the form of money or certificates or property and car or any of such things, these are liquidated in order to be able to pay down the creditors and lenders.
On the other hand, Chapter 13 is a reorganization plan. This takes you around three to five years before the debt payments get completed. So, you may not be able to save any money, though this cannot be a highly realistic fact. In case of the chapter 13 bankruptcy, a debtor is supposed to make the payments to the bankruptcy trustee. The payments are done based on your disposable income based on 3 to 5 years. However, on the other hand it is considered reasonable with regards to 401K contributions, which are considered as acceptable savings.
Another thing that is to be kept in mind ism when the repayment plan with regards to Chapter 13 bankruptcy is setup, the court provides you to save or keep a particular amount which you may be able to use for various expenses. It is commonly known that these costs are supposed to change depending on your income and expenses. So you can accumulate some of the money which remains unused. Yet again, the bankruptcy trustee may start checking out the amount you are being able to accumulate. This is because, Chapter 13 is considered as the best effort plan. So, the job of the trustee is to check out if the circumstances you were in, have improved with time. If that happens, the payment terms may get modified accordingly. However, this can happen only if your income has increased.
On the other hand, if the circumstances you are in changes, and if you face even greater hardship, the plan can get amended in this case too. This means, the repayment plan gets changed depending on your lowered affordability.
This therefore means that, if you have filed for Chapter 7 bankruptcy, you will be able to start saving more. On the other hand, if you file Chapter 13 bankruptcy, if you want to save, you will have to do that on a short scale. This is important because, if you save more than what you are actually paying against the debts through bankruptcy, it may actually result in modification of the repayment terms.