Bankruptcy Basics
If your financial situation is causing you problems at work, at home, and with your health, you may be considering whether it’s worth considering filing for bankruptcy.
The bankruptcy system was intended to help honest people who are in financial trouble to get a fresh start. If you are struggling under a mountain of debt and the stress that goes with it, that may sound really good.
There are certain advantages to filing for bankruptcy. Once you file, your creditors can’t try to collect any more payment and you get to start over. Most people are surprised at how quickly and easily they can go through the system. They appreciate the chance to start over.
There are also drawbacks to filing for bankruptcy, such as the effect on your credit report. A bankruptcy is the biggest black mark there is, and it stays on your report for up to a full ten years. This doesn’t mean that you can’t get a credit card or a loan, but you’ll pay much higher interest rates as a high credit risk. Lenders who look at your credit report see any kind of bankruptcy filing and simply charge you the most they can. Bankruptcy can also affect your ability to rent an apartment or even be hired for certain jobs. Many employers do credit checks and perceive bankruptcy as a sign of irresponsibility.
The very process of filing for bankruptcy can be stressful as well, because emotionally it’s a failure. Acknowledging and preparing yourself to deal with that can minimize the negative aspects, but it doesn’t simply go away.
Here are some basic facts about bankruptcy.
1. To decide which chapter is best for you, you should talk to an attorney who specializes in bankruptcies.
2. Attorneys cost money: with a Chapter 13 filing, attorneys often will take their fees from the repayment plan, but for Chapter 7 filing, your attorney may want to be paid up front between $500 and $1,000.
3. You must have a complete list of all your assets and debts in order to effectively file for bankruptcy.
4. The majority of people file for Chapter 7 protection, where their assets are sold to pay their debts.
5. The assets that can be sold depend the state you live in, but if you own a house, it may be an exempt asset along with your car if you only own one.
6. Chapter 13 is actually a repayment plan for repaying your debts or a negotiated portion of them over three to five years.
7. No matter how much of your debt is actually repaid, the entire amount is wiped away, with a few notable exceptions such as student loans, child support or alimony.
8. Just because you file for bankruptcy doesn’t mean it will happen. After reviewing your petition, the judge makes the decision.
9. The quickest way to get your bankruptcy petition rejected is to hide something.
10. If you have assets and try to keep them away from your creditors, the court will look on this as fraud, which is a federal offense. There can be a punishment of up to a $250,000 fine and five years in prison
11. Be prepared to be asked some very personal questions about how you spend your money.
12. If you change your mind after you file, it doesn’t mean the court will let you out of bankruptcy.
13. It usually takes about three to six months to complete a Chapter 7 liquidation and for Chapter 13, the time frame won’t be more than five years.
If you do decide to look into filing for bankruptcy, make certain to consider all of the facts and the consequences. While the idea of having the slate wiped clean may be appealing, remember that nothing is ever as simple as it seems.