Excessive debt could leave Arkansas residents struggling financially. When the debt far exceeds the ability to repay the obligations, filing for bankruptcy could provide a solution. With bankruptcy, collection actions cease, and a debtor could work on commencing a fresh start. While bankruptcy offers many protections, creditors may receive payments from non-exempt assets. Those considering bankruptcy might worry about what the creditors might take.
Paying creditors during bankruptcy
Personal bankruptcy involves filing either Chapter 7 or Chapter 13. Those eligible for Chapter 7 liquidate assets to pay off some debts while other debts face discharge. With Chapter 13, some debts get discharged, but the filing involves making a payment plan to repay a portion of the debt owed to creditors.
Asset exemptions vary depending upon where someone lives. Arkansas residents may choose between federal or state exemptions, which gives them more flexibility to deal with the situation. In general, creditors could lay claim to non-exempt property and income. Surprisingly, some assets not amassed at the time of bankruptcy, such as an inheritance received or divorce settlement proceeds, could become fair game to creditors.
Surprisingly, a creditor could claim payments of $600 or more towards a debt provided the payment took place within a designated timeframe. Tax filers might lose their refunds during bankruptcy. Ultimately, some assets go to creditors, but some exemptions allow debtors to potentially survive financially.
Protected assets for bankruptcy filers
Individuals filing for bankruptcy might worry about the stress of trying to meet living expenses such as rent and food. Discharged unsecured debt might relieve many burdens, and so could the possible exemptions. Social Security benefits are exempt, as is a certain amount in a retirement account. Rules exist to protect those relying on alimony, life insurance settlements, and other sources of revenue.
Personal items and household goods reflect two assets that come with an exemption amount. Anything under the exemption amount may not go to a creditor. The law provides these and other protections that could make bankruptcy worthwhile for filers.