Bankruptcy can seem like an intimidating topic that only the wealthy need to worry about, but in reality, more and more people are finding themselves in debt with no way out.
While you may have heard stories about celebrities filing for bankruptcy, there’s a good chance that many of your friends or family members have either filed for bankruptcy or know someone who has.
If you’re struggling financially, this guide will walk you through Everything You Need to Know About Filing for Bankruptcy if bankruptcy is right for you and how to go through the process should you choose to file.
The Different Types of Bankruptcy
There are two main types of bankruptcy. A Chapter 7 bankruptcy is a liquidation bankruptcy.
This means all your assets will be sold off and the proceeds will be used to pay back your creditors.
A Chapter 13 bankruptcy is a debt repayment plan, which means you get an extension on your payments as well as other options that will help you repay your debts over time.
The process can take from three to five years and once it’s complete, any remaining debt will be discharged (erased).
If filing for either type of bankruptcy, make sure you give them your social security number so they can file correctly.
Next, decide whether or not you want to hire a lawyer. For example, if your income exceeds $150k/year or you own more than one home worth $1 million dollars.
Or more then most lawyers won’t work with you unless they charge hourly fees rather than getting paid based on the percentage of what gets discharged during the bankruptcy process.
What debts can be discharged in bankruptcy?
Debts can be discharged in bankruptcy if they are either non dischargeable or dischargeable.
Non dischargeable debts include student loans, taxes, and criminal fines.
Dischargeable debts include credit card debt and personal loans.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy allows an individual to get rid of their unsecured debts.
It requires a court process where the person’s nonexempt property is liquidated and the proceeds distributed among creditors according to the plan confirmed by the court.
What is Chapter 13 bankruptcy?:
A person with a regular income that has filed for Chapter 13 will have their debt obligations restructured under this chapter.
The filer makes payments over time to a trustee who disburses these funds to creditors.
At the end of a three to four year repayment period, any remaining debt is wiped out as long as there were no significant defaults made on payments during that period
How to file for bankruptcy
If you’re looking to file for bankruptcy, here’s the information you need.
First, speak with a lawyer or bankruptcy trustee in your area. You can find a list of trustees at the U.S.
Trustee Program website by typing in your state and city name. Next, gather all your financial records so that they are easily accessible when you meet with the trustee or lawyer.
Keep any documents related to business ownership on hand as well if applicable. If you have questions about how bankruptcy will affect your family, contact an attorney who specializes in family law.
Keep in mind that the filing process is complicated and should be taken seriously; it’s possible that filing for bankruptcy will prevent you from obtaining future loans or applying for other credit products. It may also negatively impact your credit score.
Remember that bankruptcy can relieve stress, which has been shown to positively impact one’s mental health, physical health and emotional stability.
Speak with a specialist before deciding whether filing for bankruptcy is right for you!
The bankruptcy process
It’s easy to be overwhelmed by the bankruptcy process, but it doesn’t have to be.
There are many common questions about filing for bankruptcy, and we’ve answered them here.
What is a bankruptcy?
A bankruptcy is an insolvency proceeding in which a debtor has some or all of their debts discharged, meaning that they are excused from repaying those debts.
The most common form of personal bankruptcy in the U.S. is Chapter 7 bankruptcy, where assets (anything with value) owned by the individual become property of the court and are sold off to pay back as much debt as possible.
People often use this type of bankruptcy because they don’t want to give up any assets if possible.
Chapter 13 bankruptcies offer more flexibility; individuals can usually keep their home even if there isn’t enough equity to cover what they owe on their mortgage.
Individuals who can afford monthly payments on back taxes or child support may also qualify for Chapter 13.
They’ll need to come up with a plan detailing how much will go towards each debt each month, and then the judge will decide whether or not that plan meets the legal requirements.
If so, the judge will issue a discharge order at the end of 3-5 years.
What are the consequences of filing for bankruptcy?
Filing for bankruptcy has a lot of consequences. It’s not an easy process and it may take years before you’re discharged from your debts.
Conclusion
You have up to five years (depending on how much income you have) during which time you must make monthly payments on your outstanding debts.