Things to Know About Going Bankrupt
A person is bankrupt if they cannot meet their debt obligations any longer. If you meet this definition, it might be time to face financial reality and declare bankruptcy. There are two popular ways of declaring bankruptcy. The most prevalent route of the two is to willingly file for bankruptcy. The other less popular way involves creditors going to court to declare a person bankrupt. No matter the preferred route, filing for bankruptcy could be a lifesaver.
Prior to starting the process, locating a good bankruptcy attorney is wise. While it might sound frightening, those filing for bankruptcy have to appear in court for one hearing — the meeting of creditors. This entails answering certain questions from the creditors and the trustee. Other important things to know about going bankrupt include the following:
There Are Two Kinds of Personal Bankruptcy – Chapter 7 and Chapter 13
A Chapter 7 bankruptcy enables the filer to completely eliminate their debt. You have to qualify for it by showing through your income and/or expenditures that you are totally unable to pay your debt. Acceptable reasons for filing for a Chapter 7 bankruptcy include huge medical bills, unemployment, divorce and having a very large debt. This chapter may liquidate the filer's assets to pay off as much of their debt as possible. A notice of discharge is often received within four months.
A chapter 13 bankruptcy (reorganization bankruptcy) is designed for those who have a personal property they would like to keep. It enables you to pay your debts over a period of 3 to 5 years. It is a good option for debtors who have a continuous and predictable annual income as it offers them a grace period. Any amount still owned by the end of this grace period is normally forgiven.
As soon as one succeeds in court, creditors are prohibited from trying to collect their dues from the filer anymore. Bankrupt persons may then continue to work and pay off their debts over the stipulated period without losing their possessions. A Chapter 13 bankruptcy also halts foreclosures, allowing the victim to keep their home.
It is important to get the right attorney for your case. Some attorneys may specialize in one of these two types of bankruptcy, so look for a chapter 7 or chapter 13 bankruptcy attorney according to which one you plan to do.
Declaring Bankruptcy Is Quite Expensive
In general, it is cheaper to file for a Chapter 7 bankruptcy ($1,500 to $2,500) than to file for a Chapter 13 bankruptcy ($2,000 to $4,000). However, it easier to meet Chapter 13 costs of bankruptcy because they can be included in the 3 to 5-year payment plan. On the other hand, chapter 7 costs should be paid at once. One thing to know, however, is that any qualified bankruptcy attorney will offer consultations for free.
A Record of Bankruptcy Appears on the Credit History
After the process is over, history will be added to the credit report and stay there for ten years. Although this might sound discouraging, the older that particular bankruptcy is, the less effect it has on the filer's credit score and their ability to obtain loans. If one files a Chapter 13 bankruptcy and continues to pay off their debt well, their credit score might actually get better after just twelve months. After a filing Chapter 7, one might need around two years to improve their credit score and qualify for an FHA loan.
Finally, bankruptcy is a public affair even though the filer goes through it alone. Anyone can access the filer's financial situation in the last few years if they choose to.