What Happens to Your Debts in Bankruptcy in Virginia?

Filing for bankruptcy can be a daunting decision for many individuals, particularly when it comes to understanding what happens to debts during this process. In Virginia, as in other states, bankruptcy serves as a legal mechanism designed to help individuals manage or eliminate their debts. This article explores how different types of debt are affected when you declare bankruptcy in Virginia.

Types of Bankruptcy in Virginia

In Virginia, individuals typically file for either Chapter 7 or Chapter 13 bankruptcy. Chapter 7, often referred to as "liquidation bankruptcy," allows for the discharge of most unsecured debts after the sale of non-exempt property. Chapter 13, on the other hand, involves a repayment plan that lasts three to five years, during which you keep your assets but must make monthly payments to creditors.

Unsecured Debts

Unsecured debts, such as credit card balances, medical bills, and personal loans, are typically discharged under Chapter 7 bankruptcy. This means that you are no longer legally required to pay these debts after the bankruptcy process is complete. In Chapter 13 bankruptcy, unsecured debts can also be discharged, but they may be repaid in part through the repayment plan, depending on your disposable income.

Secured Debts

Secured debts, like mortgages and car loans, are tied to specific assets. If you file for Chapter 7 bankruptcy and wish to keep the secured property, you will have to keep making payments. If you cannot maintain these payments or if the property exceeds the state exemption limits, the bankruptcy trustee may sell the asset to repay your creditors. In Chapter 13, you can keep your secured assets by including them in your repayment plan, thus ensuring you make necessary payments over time.

Non-Dischargeable Debts

Some debts are considered non-dischargeable under both Chapter 7 and Chapter 13 bankruptcy. These include student loans, child support, alimony, and certain tax debts. Even if you file for bankruptcy, you will still be responsible for repaying these obligations. It's essential to understand which debts are exempt to manage your financial expectations effectively.

Impact on Credit

Filing for bankruptcy will have a significant impact on your credit score. A Chapter 7 bankruptcy will remain on your credit report for ten years, while a Chapter 13 bankruptcy will remain for seven years. This can affect your ability to secure loans, credit cards, and even housing. However, many individuals find that managing their debts through bankruptcy allows them to rebuild their credit over time.

Exemptions in Virginia

Virginia has specific exemptions that allow individuals to protect certain assets from being sold to pay creditors in bankruptcy. These exemptions may include equity in your home, personal belongings, retirement accounts, and a vehicle. Understanding these exemptions can play a crucial role in how your debts are managed during bankruptcy.

Consulting a Bankruptcy Attorney

Given the complexities of bankruptcy law, it's highly advisable to consult with a qualified bankruptcy attorney in Virginia. An attorney can help you understand your options, ensure that you file the appropriate type of bankruptcy, and guide you through the process, protecting your rights and interests.

In conclusion, understanding what happens to your debts in bankruptcy in Virginia is essential for making informed financial decisions. Consider your debt type, the kind of bankruptcy you wish to file, and consult with professionals to navigate this challenging yet potentially liberating process.