Every year, many people file for bankruptcy. The number is astounding – around 1.4 million people each year, considering how much of a hassle bankruptcy can be and the effects it can have on both you and your credit history. People file for bankruptcy because they find that it is the only way out of their increasing debt due to credit cards, loans, and other amounts of money they simply cannot pay for. With creditors constantly trying to get their money and people unable to make enough to cover the expenses, they finally resort to filing for bankruptcy in order to escape both the constant worry and the debts they are drowning in. Sometimes bankruptcy can help, other times it may only make the relief temporary but it does damage your credit score all the same. In the end it is up to you on how things will play out, but if you can skip bankruptcy in the beginning, you should do so. Bankruptcy is what occurs when you are unable to pay for all your debts and require assistance in ridding yourself of them if at all possible. You work with the courts in order to assess your situation and your debts can either be completely removed or reorganized so that your income can cover them and eventually they are paid off. If your debts are erased, either partially or completely, that is called discharging. Sometimes you can pay off the majority of your debts and be free from paying the rest of them even after your case has closed and your repayment plan finished. If you are in over your head with your debts and are completely unable to pay them back, bankruptcy could be your only escape route. No matter which bankruptcy chapter you decide to file under, there are going to be some negatives and positives to each one. The negatives usually outweigh the positives, but at the very least you can be almost or completely debt free, despite the repercussions. There are different chapters of bankruptcy one can file for, but the two main chapters are chapter 7 and chapter 13. When you decide to file for Chapter 7 bankruptcy, you must use the documents provided by bankruptcy courts and fill in a large amount of information. In order for your Chapter 7 bankruptcy case to proceed accordingly, the court will need your income, number of debts, the amount, the type, and all the assets you possess. You may want an attorney present to help you with this so you can be sure to include all the correct information as leaving out something can be considered fraud. You must also be sure to include all your debts, as forgetting one will leave it out of the case and it will not be discharged in any way. Once you file, your creditors can no longer hassle you about your payments, garnish your wages, taking money from your savings or checking accounts, or from suing you for nonpayment of your debts. Chapter 7 bankruptcy, or straight bankruptcy, means a number of your assets that you listed in your petition will be liquidated, or transformed into money in order to pay your creditors. Usually, the debtor will be able to keep his or her residence as well as car in order to have some place to live and a means of getting to and from work. Some of your assets will not be used to pay your creditors, as they are not allowed to be used in such a manner as protected by law, such as Social Security Payments, unemployment pay, trade tools, books, and other items. Though some of your debts may be discharged, some are not allowed to be discharged and you must pay them in full or continue paying them, such as alimony, child support payments, student loans, or debts you neglect to mention to the court. Any fines you sustained from drunk driving, theft, other forms of larceny, financial fraud, or other illegal means are also not able to be discharged. The court will determine which debts are dischargeable and which are not. Usually, dischargeable debts will include rent to landlords, credit card debts, charge card debts, department store card debts, utilities (gas, electricity, and certain other utilities), loans from friends or family that have documentation, unsecured loans, legal or medical bills, or gasoline card debts. If the court has determined something falls under the category of non-dischargeable, then you will have to pay for all of it, as none of it will disappear due to your bankruptcy filing.
Chapter 13 bankruptcy or the wager earner chapter is the other option you have when filing for bankruptcy. The same papers will be used when you file for Chapter 13 bankruptcy as well as the fees. This time you will receive a trustee as appointed by the court to watch over your case and your payments to creditors. You will also submit a repayment plan to the court, which will then be accepted or rejected. You may also want to confer with a lawyer on this plan, as it may take quite some time depending upon your current wages and what you owe. If you do not make an acceptable proposal for secured debts, you will have to give up the collateral for them.
Filing for Chapter 13 means instead of having your assets liquidated, you will use the repayment plan the court has approved to pay back your creditors. You should already have a steady income with which to do this, and doing so can sometimes take up to 5 years. You will not lose any of your property, and the trustee will be in charge of taking the payments you make to your creditors, as well as making sure you stay within the guidelines of your repayment plan. Sometimes debts can be discharged after you have completed the repayment plan and some debt still remains.
Each chapter has its ups and downs. Chapter 7 will finish much more quickly than Chapter 13, which, as mentioned above, can take as long as 5 years to complete. Along with a speedier outcome, Chapter 7 can leave you debt free. If the decision is made for all your debts to be discharged, you can begin once more with no debt to worry about and try again, this time making sure that you are much more careful. Establishing credit after bankruptcy can be difficult, but it can be done. The problem with Chapter 7 bankruptcy is that any nonexempt property will be sold and the money will go right to your creditors. You could be left with little (though you would have what is necessary to manage), and even then, not all of your debts may be discharged, in which case you would still have to find a way to pay them off. You will also have to be careful in the first place when deciding to file. Be sure it is the last result you have when it comes to your debt, because once you file, you may not be able to stop your petition.
Chapter 13 bankruptcy means you can keep all your property, no matter what category it falls under. Creditors can no longer bother you and must wait for their payments as specified in your repayment plan. Your debts are split up into different classes, which means each class will have different percentages you pay. The length of time you have to repay your debts under Chapter 13 is much longer than the time you have under Chapter 7. The negative side to Chapter 13 is, ironically, the time you have to repay your debt. Though you have a great deal of time to do so, it can become tiresome and draining on your income. Your debts must be under $1,077,000 in order for you to file for Chapter 13 bankruptcy, and sometimes debts can continue to plague you even after your repayment plan is finished, as they are not always discharged after the time has gone by.
So do you want Chapter 7 or Chapter 13? There is no right answer; it depends upon your specific situation, how much you owe and how much you earn. Whether or not you want to have assets liquidated or not. You will have to make your own considerations on how you want to get rid of your debts, but either way, you will have a difficult time improving your credit history after it is all said and done.
You can always enlist the help of an attorney when it comes to filing your bankruptcy case and organizing your assets or repayment plan (depending upon which chapter you decide to file under). Deciding to get a lawyer means you should do some research first in order to find someone who does their job well instead of a person who looks for quick cases for easy money. A case can bring up complications and having an attorney there to help can be a relief. Sometimes creditors will have problems with a debt being discharged or you have a lot of property that can be liquidated, and having a lawyer there to handle these problems can make life easier.
Though the term bankruptcy usually calls up thoughts of people with no money and unable to pay for anything, that is not true. If it were, people would not be able to pay the costs that bankruptcy can bring. Yes, even filing for bankruptcy will have its expenses. Filing fees for bankruptcy petitions are $185 for Chapter 13 and $200 for Chapter 7, which is due when you hand in your petition, or can be given in installments if agreed to by the court. If you file jointly as a couple, then the fees will be even more, anywhere from $500 to $1,500. Though an attorney can be extremely helpful, they will also cost you money. Some lawyers have flat fees whereas others work on an hourly basis, so the cost from attorney to attorney will be different, and can start at $100 and go up from there. There are also trustee costs that you will have to pay. Usually this will only apply to Chapter 13 bankruptcy, and will be decided upon by a judge or a U.S. Trustee depending upon your location.
Though people will not want to file for bankruptcy more than once, as filing once will already cast a negative light upon your credit history, you can still file for Chapter 7 bankruptcy once every six years. It is possible for file for Chapter 13 bankruptcy more often, but if you file once, you will be in the midst of your repayment plan, which may last up to 5 years, and be unable to file again during that time.
After your bankruptcy case, you may be wondering, “How do I establish credit again?” The answer is to be much more careful in your use of credit and work on building a good credit history. As you cannot be fired just because you filed for bankruptcy, you should still have some kind of income. Make sure you only use one or two credit cards sparingly, pay your bills on time, and so what you can to pay off the balances in full each time. Avoid building up a large balance as it will only collect finance charges and add on to the amount you have to pay, putting you in debt once again. There are credit cards for people with bad credit, which you may have to opt for depending upon what the bankruptcy case does to your credit report overall. Filing for bankruptcy will continue to show up on your credit report for the next 10 years, so it will take a lot of time and patience, as well as good credit history buildup to push the bankruptcy out of the picture. As long as you know it is always possible to establish credit after bankruptcy, you should try not to worry a great deal.
Do everything you can to keep out of this situation in the first place. Bankruptcy may seem like an easy way out, but it takes a lot of time, money (which you already have precious little of), and work to get through. It can be very trying on everyone involved and leave you looking at the future without much enthusiasm. Though it is a way out, it is the last one you want to take. Just be careful with your finances, keep a tight rein on your money, and do not get overzealous with your spending. Treating yourself once and a while is nice, and as long as you pay back your credit card, you will be fine. But treating yourself to a ridiculous amount of money each time and paying back only the minimum each time you receive your bill is only one of the many ways you can wind up looking a bankruptcy petition right in the face.
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