Bankruptcy
Bankruptcy may be the remedy that you are looking for if your debt is absolutely overwhelming and you cannot find a way to quickly get out of it. Because everyone struggles with different types and amounts of debt, there are two types of personal bankruptcy that cater to various incomes, household sizes, types of debt, and personal property that you have. For example, if you are an individual with a lower income and little to no assets a Chapter 7 bankruptcy is usually best. But if you are in the higher income range and have a large amount of equity in a home or vehicle, Chapter 13 bankruptcy will typically benefit you more. Either way, the end result of each type of bankruptcy is the same: eliminating your debt.
Chapter 7 is the most common type of bankruptcy filed in the United States today. It is known for being able to quickly produce a financial “fresh start” by eliminating all, or the majority of, the typical debt that individuals face today. It typically lasts 6-8 months from start to finish. When you have a substantial amount of debt that you do not realistically see yourself coming out of in the next year, a Chapter 7 may be the jumpstart you need to get back on track financially.
Chapter 13 bankruptcy is a 3-5 year interest free repayment plan where the debtor is allowed to pay back a certain percentage of their overall unsecured debt. Unsecured debt can include credit card debt, medical bills, judgments, or even pay day loans. At the end of the 3-5 year period you will not only be debt free, but current on all of your secured payments such as car notes, mortgage payments and student loans. If you are concerned about losing your house to foreclosure, or losing your car to repossession, a Chapter 13 could help you get back on track financially while keeping those items safe.
Declaring Bankruptcy
Choosing to file bankruptcy may be one of the hardest decisions you and your family ever makes, so be sure to ask plenty of questions so that you can be knowledgeable and confident in the process before it ever starts. You may chose to ask friends or family members that have filed before or consult with an attorney that specializes in helping people file bankruptcy. Some common reasons to declare Chapter 7 bankruptcy include: high amounts of credit card and/or medical debt, judgments against you, or personal loans. On the other hand, claiming Chapter 13 bankruptcy can help with situations like foreclosure on a home or repossession of a vehicle.
How to file Bankruptcy
To file bankruptcy, certain forms must be accurately filled out and filed with the United States Bankruptcy court. Whether or not to hire an attorney to file the paperwork on your behalf is your decision to make. You should be aware that the paperwork for a Chapter 13 is much more complex than that of a Chapter 7, so hiring an attorney is highly recommended. Regardless of the chapter of bankruptcy you file, you will be asked to present financial documents such as pay stubs, tax returns, and bank statements to whoever is preparing your bankruptcy petition.
Personal Bankruptcy
When filing either chapter of personal bankruptcy there are certain requirements you must fulfill in order for your debt to be correctly discharged. The first requirement is a credit counseling course that you take either online or over the phone before your bankruptcy is filed with the court. There are no “right or wrong” answers for this course; it only requires some light reading and acknowledgement that you understand. The second part of that requirement, called the debtor education course, comes after your case is filed. Just like the first course, you can take it online or over the phone and it is based on completion.
After your courses are completed you will be required to attend what is known as the 341 hearing or your “meeting of creditors.” Although all of your creditors will be invited to attend, it is rare for any of them to show up. The hearing can last from 10-30 minutes depending on what Chapter of bankruptcy you file and how many questions your bankruptcy trustee has for you. These hearings usually last longer for Chapter 13 bankruptcies simply because it involves going over the outline of the 3-5 year repayment plan. If you choose to hire an attorney to help you file bankruptcy he or she may attend this hearing with you and prepare you before you go.
Lastly, there are also required filing fees you must pay to the court depending on what chapter you choose to file. As of November 1, 2011 the fee is $306 to file a Chapter 7, and $281 to file a Chapter 13. In most cases these fees are non-negotiable, but there are rare instances where the court will allow the fee to be waived. You may need to consult with a local attorney about the specific laws in your state.
What happens when I go bankrupt?
Many people assume that going bankrupt is detrimental to a person’s credit, interest rates, and financial life in general, but that is simply not true. Declaring bankruptcy is, in some cases, the best choice a person makes when they are facing insurmountable debt. It is true that bankruptcy will stay on your credit report for 7-10 years depending on what Chapter you file, but it does not make it impossible for you to do things like own a home or vehicle or even re-establish credit. In fact, the day you receive your bankruptcy discharge papers in the mail stating that you are debt free is also the day that you can start rebuilding your credit. The key is to make positive financial decisions after your debt has been discharged by either Chapter 7 or 13 bankruptcies.
It is important to remember that certain debts cannot be discharged or reduced in any way by filing a personal bankruptcy, such as student loans, child support payments, or debts owed to the government like parking tickets or city fines.
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