When drowning in overwhelming debt, many people consider claiming bankruptcy as a possible way of dealing with their personal financial crisis. However, it is important to thoroughly understand what happens when you declare personal bankruptcy.
Personal bankruptcy is covered under Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code and both of them cater to different financial situations. For those drowning in disposable debt, the traditional notion of liquidation under Chapter 7 is the best option. On the other hand, those proving sufficient disposable income can file under Chapter 13 and repay a portion of their debts to creditors.
When declaring yourself bankrupt under Chapter 7, your assets are liquidated by a trustee and the money then distributed amongst your creditors in order to pay off a portion of your debts. You may lose any property that is not considered exempt and at the end of the bankruptcy process, any debts that were not considered dischargeable will still require payment.
The process involves filing all the necessary paperwork, including certificates from any financial education courses that are mandatory in your state, and paying the fee of $300. After that you will wait for the Meeting of Creditors which gives creditors the opportunity to object to the discharge of any specific debt. If all goes well and there are no objections, your debts will be discharged a couple of months later and you will be free to start rebuilding your credit. Unfortunately, in some cases a trial may be necessary within the 60 days following the Meeting of Creditors to resolve any objections brought forth by creditors. It would be advisable to have a qualified bankruptcy attorney represent you during this time.
When you file a bankruptcy claim under Chapter 13, you must first successfully complete a Means Test proving you are eligible to file based on your amount of disposable income verses your debts and the cost of living in your area. This is very simple and can actually be done for free on the internet, but at the time of filing the official Means Test form must be submitted. As well as completing all the paperwork to file the petition and paying the fee, you will be required to present the court with a repayment schedule. You will receive guidance on how to prepare this as part of a financial education course if your state requires that you attend one prior to filing your petition for bankruptcy. Generally, it is stated that the debtor must present a certificate from a Debt Management and Credit Counseling course proving that they were taken within the 60 days prior to filing. A trustee will then be appointed to liaise with your creditors and help you carry out the repayment scheme over a period of 3-5 years.
The process of filing bankruptcy and having your debts discharged is a relatively simple one and many choose to complete it on there own without any legal help. While this is certainly possible, it is not recommended as qualified bankruptcy attorneys are able to offer legal advice to guide you through the process easily and quickly. They are also able to inform you as to the effects that bankruptcy will have after the discharge is complete.
When you declare bankruptcy you are essentially stating that you are not financial responsible. This declaration is a matter of public record and your credit report outlining the discharged debts will remain for up to 10 years. This may make it difficult to qualify for a mortgage or loan, rent property, or even receive a job promotion. Discussing the consequences with an attorney will ensure that you are well-informed as to what happens when you declare personal bankruptcy.
To find out if the personal bankruptcy process is right for you, consider filling out our free bankruptcy evaluation.