What Bankruptcy Can and Cannot Do For You
Different Types of Bankruptcy Available in Nevada
When facing overwhelming debt, bankruptcy often emerges as a viable option for financial relief. In Nevada, the two most common forms of bankruptcy are Chapter 7 and Chapter 13. Understanding these types and who qualifies for each is a critical first step in the journey toward debt relief. In this section, we will delve into the characteristics of each type and shed light on the qualifications under Nevada state law.
Chapter 7: The Route of Liquidation Bankruptcy in Nevada
Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” allows you to eliminate most of your unsecured debts by liquidating your non-exempt assets. The proceeds from these liquidations are used to pay off creditors. In Nevada, you might be able to keep some of your assets under the state’s exemption laws, such as your home or a vehicle up to a certain value.
To qualify for Chapter 7 bankruptcy in Nevada, you must pass a means test. This test assesses your income and expenses to determine if you have enough disposable income to repay your debts. The means test is based on the median income for a household of your size in Nevada. If your income is below this median, you are likely eligible to file for Chapter 7.
Chapter 13: Reorganization Bankruptcy Explained
Contrary to Chapter 7, Chapter 13 bankruptcy does not involve liquidating your assets. Instead, you enter into a court-approved repayment plan that usually lasts between three to five years. This option is more suitable for individuals who have a regular income but are struggling with debt payments.
In Nevada, Chapter 13 eligibility requires that your unsecured debts are below $419,275 and your secured debts are under $1,257,850. Additionally, you must be up-to-date on your tax filings for the past four years.
Who Qualifies for Each Type Under Nevada Law
Eligibility for Chapter 7 and Chapter 13 bankruptcy not only hinges on the means test and debt limits but also on other factors like previous bankruptcy filings. For instance, you can’t file for Chapter 7 if you’ve already received a Chapter 7 discharge in the past eight years. Similarly, a prior Chapter 13 discharge must be at least two years old to file for Chapter 13 again.
Advantages of Filing for Bankruptcy in Nevada
What Bankruptcy Can Accomplish for You in Nevada
Understanding what bankruptcy can do for you is essential for setting realistic expectations. Below, we explore some of the key advantages offered by the Nevada bankruptcy system, such as stopping creditor harassment, discharging certain unsecured debts, and even halting foreclosure or repossession processes.
How Bankruptcy Can End Creditor Harassment in Nevada
One of the immediate reliefs offered by filing for bankruptcy is the automatic stay. Under Nevada law, an automatic stay effectively stops most creditors from continuing their collection efforts against you. This means no more constant phone calls, legal actions, or wage garnishments until your bankruptcy case is resolved. The automatic stay is designed to give you some breathing room while you sort out your financial situation.
The automatic stay isn’t permanent and creditors can request the court to lift it under certain circumstances. However, it can provide temporary relief from the relentless pressure of owed debts. Failing to abide by the automatic stay can result in penalties for creditors, making it a powerful tool in your favor.
Wiping Out Unsecured Debts: What Qualifies
One of the most significant benefits of filing for bankruptcy, especially Chapter 7, is the ability to discharge unsecured debts. Unsecured debts are those that aren’t backed by collateral, like credit card debts, medical bills, and personal loans.
In Nevada, certain debts are dischargeable, meaning they can be completely wiped out. However, there are limits and conditions to this. For example, recent tax debts and child support payments are not dischargeable. Understanding which debts can be eliminated is essential for evaluating if bankruptcy is the right strategy for you.
Stopping Foreclosure and Repossession Procedures in Nevada
If you’re behind on your mortgage or car payments, filing for bankruptcy can also offer you a lifeline. Specifically, Chapter 13 bankruptcy can help you keep your home and car by restructuring your debt into manageable monthly payments. The automatic stay applies here too, stopping foreclosure or repossession actions temporarily while you catch up on payments.
It’s important to note that the automatic stay won’t eliminate the debt. You’ll need to continue making payments under the Chapter 13 repayment plan. Failure to adhere to the repayment plan can result in the lifting of the automatic stay, resuming foreclosure or repossession processes.
What Bankruptcy Cannot Achieve for You in Nevada
While bankruptcy can offer significant relief from overwhelming debt, it’s not a one-size-fits-all solution that wipes the slate clean for every kind of debt or financial obligation. In this section, we’ll discuss what bankruptcy cannot do for you under Nevada state law.
Debts That Remain: What Bankruptcy Won’t Erase
Many people mistakenly think that filing for bankruptcy will absolve them of all their debts. This is far from the truth, especially when certain types of debt are considered “non-dischargeable” under Nevada law. For example, student loans, alimony, and child support are generally not eliminated through the bankruptcy process.
Tax debts are another category that is generally not dischargeable, especially if they are less than three years old. Criminal fines and penalties are also unaffected by bankruptcy. Knowing which debts will remain is crucial for forming a realistic understanding of what life post-bankruptcy will look like.
Unprotected Co-Signers: The Nevada Legal Perspective
If you have loans or debts that were co-signed by another person, filing for bankruptcy won’t protect your co-signers from the obligation to pay back the debt. Once you file for bankruptcy, creditors will often target co-signers to recover the debt, especially if the co-signer has a better financial standing.
Under Chapter 13 bankruptcy in Nevada, some legal provisions can provide temporary relief for co-signers. The “co-debtor stay” may protect co-signers for a limited period, but it doesn’t absolve them of their responsibility to repay the debt. Always consult with a qualified attorney to understand the full implications for co-signers when considering bankruptcy.
Asset Liquidation Risks in Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy in Nevada may seem like a quick way to eliminate debt, but it comes with the risk of losing your non-exempt assets. While Nevada’s exemption laws allow you to keep certain assets, like some equity in your home or car, other valuable belongings may be liquidated to repay creditors.
For example, valuable jewelry, additional real estate properties, or expensive electronics could be at risk. It’s essential to weigh these risks against the benefits of debt discharge before proceeding with Chapter 7.
Alternative Debt Relief Strategies and Considerations in Nevada
While bankruptcy can offer a pathway to financial stability, it’s not the only route available to those struggling with debt. In Nevada, several alternative options exist that may better suit your specific situation. Also, it’s essential to understand the long-term implications of filing for bankruptcy, especially concerning your credit score.
Debt Consolidation: Merging Your Debts into One
One popular alternative to bankruptcy is debt consolidation. This strategy involves taking out a new loan to pay off multiple debts, thereby combining them into a single monthly payment. The goal is to secure a lower interest rate on the new loan, making your debt more manageable. However, this is often only an option for those with a relatively good credit score.
Debt consolidation doesn’t eliminate your debts; it simply restructures them. Therefore, it’s crucial to assess whether this approach will genuinely reduce your financial burden in the long run.
Debt Settlement: Negotiating with Creditors
Another option to explore is debt settlement, where you or a company negotiate with creditors to settle for a lower amount than what you owe. While this may sound appealing, it often comes with pitfalls, such as steep fees and negative impacts on your credit score. Additionally, there’s no guarantee that creditors will agree to settle, potentially leaving you in a worse situation.
Credit Counseling: Professional Financial Guidance
For some, the root issue is not the debt itself, but the lack of a structured financial plan. Credit counseling services offer expert advice on managing debt and developing budgets. These services may recommend debt management plans that do not require taking out new loans but may involve negotiations to lower interest rates or waive fees on your existing debts.
Impact on Your Credit Score: The Nevada Perspective
Filing for bankruptcy will significantly affect your credit score, making it difficult to obtain new credit for several years. In Nevada, a Chapter 7 bankruptcy stays on your credit report for 10 years, while a Chapter 13 stays for 7 years. Understanding this long-term impact is vital for making an informed decision on whether bankruptcy is the right option for you.