What Happens if I File for Bankruptcy? Everything You Need to Know

Bankruptcy is a legal process that allows individuals and businesses to eliminate or repay their debts under the protection of the bankruptcy court. It is designed to provide relief to those who are struggling with overwhelming debt and cannot pay their creditors.

Have you asked yourself: “What happens if I file for bankruptcy?” The purpose of this blog post is to provide a comprehensive guide to bankruptcy, including the types of bankruptcy, the consequences of filing for bankruptcy, alternatives to bankruptcy, and the importance of hiring a bankruptcy attorney.

Filing for bankruptcy is a serious decision that can have significant consequences. It is important to understand the potential impact on your credit score, assets, and financial future before making the decision to file.

Types of Bankruptcy

Chapter 7 bankruptcy

Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” is designed for individuals and businesses with little to no assets and limited income.

• Eligibility requirements: To be eligible for Chapter 7 bankruptcy, you must pass a means test that compares your income to the median income in your state. If your income is below the median, you may be eligible for Chapter 7 bankruptcy.
• Process of filing: The process of filing for Chapter 7 bankruptcy involves submitting a petition to the bankruptcy court, attending a meeting with your creditors, and completing a financial management course.
• Benefits and drawbacks: The main benefit of Chapter 7 bankruptcy is that it allows you to eliminate most of your unsecured debts, such as credit card debt and medical bills. However, it can also result in the liquidation of some of your assets and may have a negative impact on your credit score.

Chapter 13 bankruptcy

Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” is designed for individuals and businesses with a regular income who have the ability to repay their debts over time.

• Eligibility requirements: To be eligible for Chapter 13 bankruptcy, you must have a regular income and your debts must be below a certain threshold.
• Process of filing: The process of filing for Chapter 13 bankruptcy involves submitting a repayment plan to the bankruptcy court, attending a meeting with your creditors, and completing a financial management course.
• Benefits and drawbacks: The main benefit of Chapter 13 bankruptcy is that it allows you to keep your assets while repaying your debts over a period of three to five years. However, it requires a steady income and can be a lengthy and complicated process.

What Happens if I File for Bankruptcy?

• Impact on credit score: Filing for bankruptcy can have a significant negative impact on your credit score, as it is a major derogatory mark on your credit report. It can remain on your credit report for up to 10 years and may make it difficult to obtain credit in the future.
• Rebuilding credit after bankruptcy: Rebuilding your credit after bankruptcy is possible, but it requires time and effort. It is important to make timely payments on any remaining debts, establish new credit accounts, and maintain a low credit utilization ratio.
• Asset liquidation: In Chapter 7 bankruptcy, some of your assets may be liquidated to pay off your creditors. However, certain assets are exempt from liquidation, such as your primary residence, retirement accounts, and personal belongings. The bankruptcy trustee will sell your non-exempt assets and distribute the proceeds to your creditors. Any remaining debts will be discharged at the end of the bankruptcy process.
• Public record: Filing for bankruptcy is a matter of public record, which means that anyone can access information about your bankruptcy case. This includes your personal information, such as your name and address, as well as details about your debts and assets. A bankruptcy record can stay on your credit report for up to 10 years, depending on the type of bankruptcy you file. It can also remain on public record indefinitely.

Alternatives to Bankruptcy

• Debt consolidation: Debt consolidation involves combining multiple debts into a single loan with a lower interest rate. This can make it easier to manage your debt and reduce the amount of interest you pay over time. The main benefit of debt consolidation is that it can simplify your debt payments and save you money on interest. However, it may not be available to everyone and may require a good credit score.
• Debt settlement: Debt settlement involves negotiating with your creditors to settle your debts for less than the full amount owed. This can help you reduce your debt and avoid bankruptcy. The main benefit of debt settlement is that it can help you reduce your debt and avoid bankruptcy. However, it can also have a negative impact on your credit score and may not be possible for all types of debt.
• Credit counseling: Credit counseling involves working with a professional counselor to develop a plan to manage your debt and improve your financial situation. This can include budgeting, debt management, and financial education. The main benefit of credit counseling is that it can help you develop a plan to manage your debt and improve your financial situation. However, it may not be able to eliminate your debt entirely and may require ongoing payments.

Choosing a Bankruptcy Attorney

Hiring a bankruptcy attorney is important to ensure that your rights are protected and that you have the best possible outcome in your bankruptcy case.

When choosing a bankruptcy attorney, it is important to look for someone with experience, knowledge, and a good reputation. You should also feel comfortable working with them and trust their guidance.

Some questions to ask when selecting a bankruptcy attorney include their experience with bankruptcy cases, their fees and payment structure, and their approach to your specific case.

Conclusion

Bankruptcy is a serious decision that can have significant consequences. It is important to understand the types of bankruptcy, the consequences of filing, and alternatives to bankruptcy before making a decision. It is also important to hire a bankruptcy attorney to ensure the best possible outcome.

Filing for bankruptcy can be a difficult decision, but it can also provide relief from overwhelming debt. It is important to weigh the pros and cons and seek professional advice before making a decision.

If you are struggling with debt, it is important to seek professional advice from a bankruptcy attorney or credit counselor. They can help you explore your options and make an informed decision about your financial future.

FAQ

What is bankruptcy?

A: Bankruptcy is a legal process that allows individuals and businesses to eliminate or repay their debts under the protection of the bankruptcy court.

What are the different types of bankruptcy?

A: The two most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 bankruptcy is a liquidation bankruptcy that eliminates most unsecured debts, while Chapter 13 bankruptcy is a reorganization bankruptcy that allows debtors to repay their debts over a period of three to five years.

Will bankruptcy stop collection calls and lawsuits?

A: Yes. As soon as you file for bankruptcy, an automatic stay goes into effect, which prohibits creditors from making collection calls, filing lawsuits, or taking any other collection actions against you.

Will bankruptcy affect my credit score?

A: Yes. Bankruptcy will have a negative impact on your credit score, and the bankruptcy will remain on your credit report for up to 10 years.

Can I keep my house and car if I file for bankruptcy?

A: It depends on the type of bankruptcy you file and the value of your assets. In Chapter 7 bankruptcy, you may have to surrender some of your assets to repay your debts, while in Chapter 13 bankruptcy, you can keep your assets as long as you make your payments under the repayment plan.

Will bankruptcy discharge all of my debts?

A: No. Bankruptcy will discharge most unsecured debts, but some debts, such as student loans and taxes, may not be dischargeable.

Can I file for bankruptcy more than once?

A: Yes, but there are restrictions on when you can file. If you previously filed for Chapter 7 bankruptcy, you must wait eight years before filing again, while if you previously filed for Chapter 13 bankruptcy, you must wait two years.

How long does the bankruptcy process take?

A: The length of the bankruptcy process depends on the type of bankruptcy you file and the complexity of your case. Chapter 7 bankruptcy typically takes three to four months, while Chapter 13 bankruptcy can take three to five years.

Will I lose my job if I file for bankruptcy?

A: No. It is illegal for an employer to discriminate against an employee or job applicant because of a bankruptcy filing.

Should I hire a bankruptcy attorney?

A: Yes. Bankruptcy is a complex legal process, and an experienced bankruptcy attorney can help you navigate the process and protect your rights.

Glossary

1. Bankruptcy – The legal process in which a person or business declares that they are unable to pay their debts.
2. Debtor – An individual or business who owes money to someone else.
3. Creditor – A person or organization to whom money is owed.
4. Chapter 7 – A type of bankruptcy where a debtor’s assets are liquidated to pay off creditors.
5. Chapter 13 – A type of bankruptcy where the debtor creates a repayment plan to pay off creditors over a period of time.
6. Automatic stay – A court order that stops creditors from taking any legal action against the debtor.
7. Discharge – The legal process of releasing a debtor from their obligation to pay back certain debts.
8. Secured debt – A debt that is backed by collateral, such as a mortgage or car loan.
9. Unsecured debt – A debt that is not backed by collateral, such as credit card debt.
10. Exemptions – Property or assets that are protected from being liquidated in bankruptcy.
11. Trustee – The court-appointed official responsible for overseeing the bankruptcy process and liquidating assets in Chapter 7 bankruptcy.
12. Means test – A test used to determine if a debtor’s income is low enough to file for Chapter 7 bankruptcy.
13. Bankruptcy estate – All of the assets and property that a debtor owns at the time of filing for bankruptcy.
14. Reaffirmation agreement – An agreement between a debtor and creditor in which the debtor agrees to repay a debt that would otherwise be discharged in bankruptcy.
15. Credit counseling – A requirement for individuals filing for bankruptcy to meet with a credit counselor to discuss their financial situation.
16. Credit score – A numerical representation of an individual’s creditworthiness.
17. Dismissal – The termination of a bankruptcy case without a discharge of debts.
18. Filing fee – The fee charged by the court for filing a bankruptcy petition.
19. Priority debt – Debt that must be paid before other debts in bankruptcy, such as taxes or child support.
20. Adversary proceeding – A lawsuit filed within a bankruptcy case, usually to determine the dischargeability of certain debts.
21. Debt relief: Debt relief refers to the partial or total forgiveness of debt owed by an individual or entity, usually provided by a creditor or government program.
22. Bankruptcy code: The bankruptcy code refers to the set of laws and regulations that govern the process of bankruptcy in the United States. It outlines the procedures for filing for bankruptcy, the types of debts that can be discharged, the rights of creditors and debtors, and the distribution of assets among creditors.