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What is Bankruptcy?
When an individual or business has unmanageable debt beyond their means, federal bankruptcy law allows the debtor (the person or business in debt) to seek and obtain financial relief for a portion or all of their debt. As soon as an individual files for bankruptcy all creditor actions, such as repossession, wage garnishment and bill collection efforts cease until the details of the bankruptcy are sorted out. Will all of my Debts be Gone After Bankruptcy?Usually not, loans may be secured or unsecured. For example home mortgages are typically considered a “secured loan”, which means that your home and property are the collateral the loan was made under. You may file bankruptcy if you own a home; however you only get to keep the home if you keep making your payments. Other debt that will not disappear after bankruptcy are student loans, alimony and child support and some legal settlements. Many debts however are forgiven and may include Credit Card payments and unsecured loans of various types. Do I Need a Bankruptcy Attorney?It is not a legal requirement to hire a bankruptcy attorney, however YES, you should have one. Read “Do I Really Need a Bankruptcy Attorney?”
How do I file for Bankruptcy?First of all, educate yourself on basic bankruptcy information to see if there is any alternative for you, don’t be hasty in this decision. If you’re an individual, look at basic information on Chapter 7 and Chapter 13 bankruptcies or hire a bankruptcy attorney for consultation. If you really believe you need to file bankruptcy, then hire a bankruptcy attorney and begin the process. Do I have to go to Court for Bankruptcy?Typically you will only need to attend one meeting. The meeting is between the individual filing for bankruptcy, their creditors and the court bankruptcy trustee. During this meeting you will be asked certain basic questions concerning the bankruptcy case. How Long Does a Bankruptcy Case Take?Depending on your situation, the bankruptcy case may last from 4 to 6 months. What's the Difference Between Chapter 7 and Chapter 13 Bankruptcy?Chapter 7 bankruptcy is also known as “Liquidation” bankruptcy and Chapter 13 is known as “Repayment” bankruptcy. In Chapter 7 liquidation bankruptcy, assets of the bankruptcy estate are sold off and the bankruptcy trustee distributes the proceeds to the creditors. Not all assets are sold off as the debtor is allowed certain exemptions. Remember it is not the goal of bankruptcy to sell everything you own and put you on the streets, the laws protect the debtor so they do not lose the assets necessary for basic living. In Chapter 13 bankruptcy is based on repayment over time. Also known as the “wage earner's” bankruptcy, Chapter 13 bankruptcy is designed for the individual with a recurring income. During chapter 13 the debtor is allowed to restructure their debt and make payments over a 2-5 year period. The payments will be made to a trustee of the bankruptcy court and trustee will pay the creditors. Will My Credit Be Ruined?A bankruptcy will usually stay on your credit record for 10 years, but this doesn’t mean your credit is completely ruined. Before the 10 years is up you will still be able to receive credit albeit at a potentially higher interest rate because of your credit score. Credit card agencies have been known to issue credit cards within a few years of a bankruptcy discharge. Who Will Know That I Filed for Bankruptcy?Even though bankruptcy is a public legal procedure, it’s doubtful that your next-door neighbor will ever know about it. If you’re a public figure or a high ranking government official, that might be a problem, however the only people that typically find out about your bankruptcy will be your creditors. How Much Does it Cost to File for Bankruptcy?The basic cost for filing bankruptcy is around $300 plus your attorney’s fee. Your bankruptcy attorney’s fee is probably going to be in the neighborhood of $2,000. I have seen advertisements for above and below that number on the Internet. The good news is your initial consultation is free and this may provide you with the professional information you need if you are still in the decision-making process. The descriptions above are not comprehensive legal definitions but rather informal descriptions of the terms and how they may be used in a case involving bankruptcy. |
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