Bankruptcy

Debt Resources

Understanding Bankruptcy

If you are in significant debt, you might be considering filing for bankruptcy. Bankruptcy is a viable option for some, but it’s not ideal for others. Depending on your situation, you might be a good fit for a different option that has fewer repercussions. Learn more about filing for bankruptcy and find out if it’s the right choice for you. Also, find out about other options that you can use if bankruptcy isn’t the right choice.

How Bankruptcy

Works

Bankruptcy is a legal process that people use as a last resort option for getting out of debt. If you file for bankruptcy and it’s approved, you can clear some, or possibly even all, of your debt. In some cases, the debt is forgiven. In other cases, the terms are renegotiated, so you can make manageable payments to eliminate the debt.

Not all debts qualify for bankruptcy. For instance, you cannot file bankruptcy for tax debts, spousal support, or child support. Also, if a debt was obtained through fraud, it’s not dischargeable.

However, you can file to discharge most debts, including:

  • Personal Loan Debt
  • Credit Card Debt
  • Collection Account Debt
  • Unpaid Utility Bills
  • Medical Bills
  • Business Debt

 

If you have these debts, you can file a claim with the bankruptcy court. The court must look at your debts, assets, and liabilities to see if you meet the criteria to qualify. If you’re approved, the court might seize some of the nonexempt property that you own and sell it. Then, the money received from the sale will go to the creditors.

Types of Bankruptcy — Understanding Chapter 7 and Chapter 13

You can file for two types of personal bankruptcy. The court can grant Chapter 7 or Chapter 13 bankruptcy. These options vary greatly.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is probably what you have in mind when you think of filing for bankruptcy. You don’t have to worry about minimum or maximum debt requirements to file for Chapter 7, but there is an obstacle called the “means test.” If you make too much money or have lots of assets, you won’t pass the means test. That doesn’t mean you can’t file for bankruptcy. You might still be approved for Chapter 13.

If you do qualify for Chapter 7 bankruptcy, the court will appoint a trustee. It’s the trustee’s job to appraise all your non-exempt assets. Non-exempt assets include your car, investments, and house. Your non-exempt assets will be sold, and the money will go to your creditors. It can take up to six months to complete this process, and at the end of the time, the court will officially clear your qualified debt. You won’t have to worry about making any more payments at that point.

Chapter 13 Bankruptcy

If you have too many assets or make too much money to get approved for Chapter 7 bankruptcy, you can consider filing for Chapter 13. To qualify, you cannot have more than $394,725 in unsecured debt and $1,184,200 in secured debt.

Chapter 7 is used to discharge your debt, while Chapter 13 allows you to restructure it. The court will give you three to five years to pay off the debt after it’s been restructured. If your mortgage is past due, you can also include it in your debt restructuring plan.

You will need to stick to the plan and use your earnings to make monthly payments. If you make your payments, you don’t have to worry about the court selling your assets to pay the debt. Then, when you reach the end of the plan, your debt will be paid off and you can put it behind you.

Which Option Should You Choose?

If you file for bankruptcy, you’ll need to decide which option to select. Remember that your assets will be liquidated with Chapter 7, but your debts will be discharged. On the other hand, you can keep your assets with Chapter 13, but you’ll pay the debts. If you aren’t sure which one to choose, you should consult with an attorney. The attorney will go over your specific situation and recommended the right path forward.

Steps for Filing for Bankruptcy

If you choose to file for bankruptcy, you will need to go through various steps. You will have to pay a filing fee, and you should also consider hiring an attorney to help you with the bankruptcy process.

Regardless of if you go it alone or hire an attorney, you need to spend time on each step to increase the chances that your bankruptcy petition is approved.

  1. Gather Your Financial Information

    You need to gather your financial information before you can file a petition. This includes your:

    • Debt
    • Income
    • Expenses
    • Assets

    You should have records of each item, so the trustee can verify the information.

  2. Seek Credit Counseling
    The court requires that you take a bankruptcy course before getting approved for bankruptcy. You must find a course with an approved agency. Many agencies provide the course over the phone. Make sure the agency provides proof that you took the course. You’ll need to include this with your filing.

  3. File Your Petition for Bankruptcy with the Court
    Once you finish the course, you can move forward with the filing. Fill out the bankruptcy petitions and then file them with the bankruptcy court. If the court accepts the filing, it will send your creditors a notice. The court will also issue a temporary stay with the notice. This stay prevents your creditors from attempting to collect the debt.

  4. Attend the 341 Hearing
    You must attend a 341 hearing after filing for bankruptcy. The trustee generally schedules this meeting three to six weeks after you submit the petition for bankruptcy. Your creditors can attend this meeting, as well. If they come, they will ask you and the trustee questions. At the end of the meeting, you will decide if you want to move forward with the bankruptcy petition.

  5. Respond to Objections from Creditors
    The creditors will receive a copy of the payment plan. After they review it, they can issue an objection due to how or when you accumulated the debt. To move forward, you must respond to the objections, if there are any. You and the lender can present evidence. If you win the objection or if there are no objections filed, your petition will proceed to the next step. 

  6. Pay the Debt
    You will pay all or some of the debt, depending on the type of bankruptcy granted. If you were granted Chapter 7 bankruptcy, the court will liquidate your assets. Then, the trustee will use the money to pay as much of your debt as possible. The court will discharge the debt that isn’t paid after liquidating your assets.

    If you’re approved for Chapter 13 bankruptcy, you will attend a confirmation hearing, where the judge will listen to your repayment plan. If approved, you will stick to the plan, and then the rest of your debt will be cleared at the end.

  7. Receive Credit Counseling
    Before your bankruptcy can be finalized, you must attend post-bankruptcy credit counseling. If you went through Chapter 7, you need to attend credit counseling after the 341 hearing. If you went through Chapter 13, you’ll need to attend counseling before you make the last payment. After you attend, you need to provide the trustee with proof.

 

Filing for Bankruptcy on Your Own

If you don’t want to pay a lawyer, you might choose to file for bankruptcy on your own. However, it’s important to understand that this process is extremely complex. You will have to file lots of paperwork, and a single mistake could derail the filing. You’re more likely to be successful if you hire an attorney.

A professional can also help you if your bankruptcy is denied for any reason. For instance, the court might refuse to approve certain debts that are eligible for discharge or even revoke the bankruptcy after approving the discharge. In these cases, your attorney can fight to get the bankruptcy approved or reinstated.

Benefits of Bankruptcy

Bankruptcy offers some benefits that you should consider if you’re in debt. These benefits can alleviate stress and help you get out from under debt.

Automatic Stay

If you are behind in your bills, you probably deal with phone calls and letters from creditors and lenders. This adds to your stress. Fortunately, you are granted an automatic stay when you file for bankruptcy. Your creditors have to cut off contact and cannot try to collect the debt while your filing moves through the court.

Keep Your Assets with Chapter 13

If you file for Chapter 13 bankruptcy, you get to hold onto your assets, including your car and your home. You do need to make your payments on time, or the court can seize your assets. However, as long as you maintain your payments, you don’t have to worry.

Get a Clean Slate

When you file for bankruptcy, some of your debts can be fully discharged. This gives you a clean slate. That’s a huge relief.

Risks of Bankruptcy

Bankruptcy also has some risks that you shouldn’t ignore. Consider all the risks before moving forward.

It Goes on Your Credit Report

When you file for bankruptcy, it goes on your credit report and follows you for years. If you file for Chapter 13, it will be on your report for seven years, while Chapter 7 will be on your report for 10 years. This will cause your credit score to plummet. You cannot really begin rebuilding your credit until it’s off your report. You’ll also have a hard time getting credit as long as it’s on your report. Buying a home or even getting a new vehicle could be extremely hard.

Not All Debts Will Go Away

Not all debts can be discharged in bankruptcy. You could still end up with lots of debt after you file.

It’s a Matter of Public Record

You probably don’t like to air your finances to the world, but it will be on your public record. People can look it up and find out you’ve filed for bankruptcy.

Other Debt Relief Options

Living underneath a mountain of debt is stressful, but there are options other than bankruptcy. Choose an option based on your credit score and the amount of debt you have.

If you have good credit, consider a debt consolidation loan. You will take out a loan, pay off your debts, and then pay off the loan. The payment will be smaller and more manageable since you will only owe one creditor instead of numerous ones. You can even get a lower interest rate if you go this route.

Along with having good credit, you need to have a steady income, so you can make your payments if you get a debt consolidation loan. Also, if you owe lots and lots of money, you might have trouble taking out a debt consolidation loan.

A debt settlement is another option, and unlike a loan, you don’t need good credit. The process is pretty simple. A company like Debt Defenders negotiates with your creditors on your behalf. The creditors accept a settlement offer, so you can get out of debt for less. You can pay the settlement in a lump sum or with monthly payments. Either way, you can get out of debt quickly.

A debt settlement will impact your credit some, but it’s not nearly as significant as the impact of filing for bankruptcy. This makes it a viable option if you have $7,500 or more in debt.

Choosing a Debt Relief Solution

The solution you need depends on your specific situations. For some, bankruptcy is the ideal choice. However, you have to keep in mind that it’s also permanent. You cannot change your mind after your debts are discharged. You’ll have to live with a bankruptcy on your credit report for seven to 10 years. Yes, it provides immediate relief, but the long-term impact can be harmful.

Before you move forward with bankruptcy, see if a debt settlement will work for you. Call Debt Defenders at (888) 333-3851 for a free consultation today. If you are a good candidate, you can settle your debt for less without tanking your credit score. If we can’t help you resolve your debt, we’ll refer you to a bankruptcy attorney who can help. 

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