Bankruptcy: How It Works, Types And Consequences

With the help of bankruptcy, you can work eliminating debt for your business or as an individual as well as establish a repayment plan for a portion of what you owe. If you’re facing a mountain of debt, bankruptcy can give you the chance to get the relief that you need to get on top of your finances again. What is important to understand is that declaring bankruptcy can have a long-term effect on your credit. Bankruptcy can be considered a fresh start but will stay on your credit report for 7 to 10 years. Not only will it be easy for creditors to see that you filed for bankruptcy in the past 10 years, but it can affect your ability to open up lines of credit, credit card accounts or get approved for a loan at a favorable rate. This article will go bankruptcy: how it Works, types and consequences.

The Basics Of Bankruptcy

Bankruptcy can be a fairly complex process and it’s usually best to ask for help if you’ve never done it before. The average person can file for bankruptcy using the forms on the IRS website but working with a bankruptcy attorney will ensure that you have everything accurately filled out and that the process can be done as smoothly as possible. There’s a series of applicable rules and regulations that are regularly changing about bankruptcy proceedings so it’s important to know that you meet the requirements and that you are able to file for bankruptcy legally. 

One of the first things that you will need to demonstrate in order to file for bankruptcy is that you cannot repay your debts. To do this, a bankruptcy court will need to see your income, a list of your assets, and a list of your debts. All of these items need to be listed in an accurate format as possible discrepancies could put you at risk for fines or even jail time. 

After you prepare the application process you will also need to complete credit counseling with a government-approved counselor. Credit counselors for bankruptcy will help you to assess your finances and discuss the possible alternatives that you had to bankruptcy. A credit counselor will also take you to a personal budget plan to show you how your income can be allocated best to help you manage debt. 

If you decide to go forward with bankruptcy proceedings you have to choose between chapter 13 and Chapter 7 bankruptcy. Both of these types of bankruptcy can help you eliminate unsecured debt, stop the chance for foreclosure or repossession, or stop wage garnishment. With both types of bankruptcy, you will be expected to pay out your own attorney fees and court costs. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often what people consider to be a standard bankruptcy. Under this type of bankruptcy, you will be appointed a federal court trustee that will supervise the sale of assets that are not exempt from your bankruptcy proceeding. The money from the sale of these assets will go towards paying back your creditors and the balance of what you all will be eliminated from your debts. A chapter 7 bankruptcy won’t allow you to discharge certain types of debt. You’ll still have to pay child support, taxes, student loans, and alimony. Any type of court-ordered that will likely persist after a chapter 7 bankruptcy. 

Under a chapter 7 bankruptcy, you could potentially lose secondary property and the bankruptcy will remain on your credit report for 10 years after you filed. If you get into debt again you will not be able to file for bankruptcy under Chapter 7 for eight years. 

Chapter 13 Bankruptcy

A chapter 13 bankruptcy works in a slightly different way and it allows you to keep hold of your property and assets in exchange for partially repaying or completely repaying your debt. Under this type of bankruptcy, a court will negotiate three five-year repayment plan on your debt. If you follow the agreed repayment plan the remainder of your debt is discharged as agreed upon by a bankruptcy trustee. A chapter 13 bankruptcy can still affect your credit but it’s often a more favorable option if you stick to the repayment plan. A chapter 13 tanker will cycle off of your credit report after just seven years and you can file back for a chapter 13 bankruptcy after just two years. 

The Consequences

One of the most well-known types of consequences from filing for bankruptcy is the loss of property. Under both types of bankruptcy proceedings, you could be responsible for giving up some of your possessions in order to pay your creditors. Bankruptcy can sometimes mean losing your valuables like antiques, jewelry, vehicles, and real estate. Your bankruptcy can also affect other people in a financial manner. If your parents cosign for an auto loan or for your home, they could be held responsible for some of the debt from you filing your bankruptcy. 

Bankruptcy will also damage your credit. Bankruptcy is often considered to be a negative item on a credit report and it will affect the way that future lenders will view you. Sing a bankruptcy on a credit report can often cause creditors to decline to give you a financial service or offering you a higher interest rate in order to manage the risk of taking you on.

It’s important that you know the risks associated with bankruptcy and what you can do to manage them accordingly. If you would like to learn more about filing for bankruptcy and how you can file in the most effective manner, contact us today.