There are a lot of misconceptions out there about bankruptcy. Some people think it’s something that only irresponsible people do. Others think of it as something people do to wipe their financial slate clean— only to start borrowing again soon after. Filing for bankruptcy can provide a fresh start, but it’s not for everyone. This guide to bankruptcy can help you learn more about the process—so you can see if it’s right for you.
Who Should File
Bankruptcy is an option for people struggling with debt. However, having debt doesn’t automatically make you a candidate for bankruptcy. Filing for bankruptcy is typically something suggested to those: 1. struggling to pay the minimum due on debts each month, 2. have limited income and no savings, and 3. are taking out more debt (such as payday loans) to pay off previous debts. Since everyone’s situation is different, pre-filing counseling is a required part of the bankruptcy process. A counselor will look
1. Struggling to pay the minimum due on debts each month
2. Who have limited income and no savings 3. are taking out more debt (such as payday loans) to pay off previous debts. Since everyone’s situation is different, pre-filing counseling is a required part of the bankruptcy process. A counselor will look
3. Are taking out more debt (such as payday loans) to pay off previous debts. Since everyone’s situation is different, pre-filing counseling is a required part of the bankruptcy process. A counselor will look
Since everyone’s situation is different, pre-filing counseling is a required part of the bankruptcy process. A counselor will look at your financial situation and will let you know what they think your best option is.
Types of Bankruptcy
The federal bankruptcy court outlines several types of bankruptcy. Typically, individuals file for either Chapter 7 (a liquidation) or Chapter 13 (a reorganization) bankruptcy. To file for Chapter 7 bankruptcy, you need to meet income requirements. If you don’t meet those income requirements, you can file for Chapter 13 bankruptcy— which involves the creation of a repayment plan to help pay off debt.
What Happens Once You File
One of the benefits of filing for bankruptcy is that bankruptcy puts an automatic stay into effect. Once the stay goes into effect, your creditors can’t sue you or come after you for the debts you owe them. What happens to your specific debts depends on the type of bankruptcy you file. When you file Chapter 7 bankruptcy, some of your assets might be sold to repay your debts. If you don’t have any eligible assets, your eligible debts will be discharged anyway. When you file Chapter 13 bankruptcy, you work with a bankruptcy trustee and your creditors to put together a repayment plan. Once you’ve completed the plan, your eligible debts are discharged. Bankruptcy won’t wipe out all debts. For example, student loans, alimony and child support, and some back taxes can’t be discharged— so you are still responsible for them after the process is over.
What’s Next?
Filing for bankruptcy does give you a chance to start your financial life over. In fact, going counseling once you’ve completed the process can help you put your financial life back on track. Bankruptcy does have several potential drawbacks. One is that a record of your filing will stay on your credit report for up to 10 years. Another is that your bankruptcy will be part of public record, so anyone (from a potential employer to a nosy neighbor) can find out about it.
Although bankruptcy can make some areas of life more challenging, at least in the short term—it is sometimes best. If you don’t see any other way out of your debt, debt can be your best or only choice. If your debt is getting you down or is making it difficult to reach your goals, contact us today for more in-depth information on the bankruptcy process.
