Sometimes due to unforeseen circumstances, unpaid bills pile up, and mortgages are late or even skipped. Then you are barraged with unwelcome phone calls, threatening letters in the mail and even bill collectors showing up at your door. You may feel as if there isn’t any way out, but one option to look into is if you want to consider filing for bankruptcy.
There are three types of bankruptcy filings, these include Chapter 7, Chapter 11, and Chapter 13. Since Chapter 11 is mostly for businesses, we’ll be covering Chapter 7 and 13 in this article. Here’s a review:
Chapter 7: There are specific requirements which you have to be eligible for, with income being the most important one. In general, you must have little or no disposable income. The cost to file a Chapter 7 is around $335 which doesn’t include attorney’s fees.
Chapter 11: Chapter 11 is mostly used for businesses. When filing a Chapter 11, the business is reorganized or restructured. If a business files under Chapter 7, it must liquidate its assets. Chapter 11 permits the company to keep assets and come up with a plan to pay off debt or get it forgiven. The filing fee for Chapter 11 is around $2,000 plus attorney fees.
Chapter 13: If you decide to file a Chapter 13, there will be a plan to pay back debts within three to five years, and you are permitted to keep your assets. Some of your debt may be discharged with qualification over time. For this to happen, you can’t have secured debts for more than $1,149,525, and your unsecured debt can’t be more than $383,175. The cost of Chapter 13 is about $310 without attorney fees.
Bankruptcy will not discharge federal student loans, alimony or child support, taxes, fraudulent loans, if debts were incurred due to driving while intoxicated, or debts that occur after the bankruptcy is filed. Plus, if you have a co-signer on a debt, they still may be legally obligated to either part or all of it.
As for timing, your attorney will tell you when your case will be filed and how long it will take. You’ll need to provide detailed financial information and review any bankruptcy forms before the filing.
What happens when you declare bankruptcy?
There are steps to filing a bankruptcy, and they can be complicated. Here’s what happens when you declare bankruptcy:
- You’ll compile your financial records and make a list.
- You’ll have to complete credit counseling within 180 days before you file your case. This step is required, and the counseling has to be on the approved list of the United States court.
- Then you’ll file a petition for the bankruptcy. You should have a bankruptcy lawyer at this point because it can be a risk to represent yourself. If bankruptcy laws aren’t followed to the letter, it could impact the outcome of your case.
- When the petition you filed is accepted, a court trustee is assigned to your case. This trustee sets up a meeting with all of your creditors. You need to go to the meeting, but your creditors do not. This meeting is for the creditors to be able to ask the court trustee or you about your case.
- After the meeting, if you filed a Chapter 7, the trustee will make the decision whether or not to liquidate your possessions. You will have to surrender the possessions, or its equivalent in cash to pay what you owe. If you filed a Chapter 13, you’ll get a payment plan to pay off the debts owed. The program is based on what your income is and how much you owe. It will include the amount that needs to be paid and when.
It takes a few months for the filing to be completed, but it will take longer for the actual bankruptcy to be completed. Chapter 7 can take a few months, and Chapter 13 can take up to five years.
What does it mean to “file bankruptcy?”
A person who wants to declare bankruptcy has more debts then the income to pay for them.
When you file for bankruptcy, a judge and a court trustee will examine all your assets and liabilities when you can’t pay your bills anymore. They’ll make a decision whether they should discharge those debts, so you’re no longer legally required to pay them.
The laws were written so people who have had their finances collapse could start over. It gives them a second chance. It may stop the foreclosure or delay foreclosure on a home, prevent having a car repossessed, stop wages from being garnished, and cease harassment from creditors.
Bankruptcy is a chance to start over, but there is a price to pay. It will affect your credit and the ability of how you can use future money.
What happens when I file bankruptcy?
Many people think that when you file bankruptcy, it will wipe out all of your debt. But this isn’t true, you still have to pay the debts but how you will depend on what type of bankruptcy you choose:
If you file a Chapter 7, you’ll have to liquidate certain assets. These may include your car or a second home, to pay off some of the accumulated debt.
When filing a Chapter 11, the business is reorganized or restructured. The company is permitted to keep its assets and come up with a plan to pay off debt or get it forgiven.
If you decide to file a Chapter 13, there will be a plan to pay back your debts within three to five years, and you are permitted to keep your assets. After some time, some of your debt may be discharged with qualification.
Can I keep my house if I file bankruptcy?
If you’re contemplating filing for bankruptcy, you may be asking yourself: Can I file bankruptcy and keep my house? Or when filing bankruptcy what can you keep?
There are three factors which may affect whether your home is safe during a bankruptcy proceeding:
- The type of bankruptcy you file: The difference between Chapter 7 and Chapter 13 is what exemptions you are allowed to take. If your property is worth less than a dollar price, chances are you can keep it. The Chapter 7 exemptions are stricter, less flexible, and lower. You have less of a chance of keeping your home when filing a Chapter 7. If you file a Chapter 13, you are more likely to end up with your home.
- The equity you have in your home: Equity refers to the market value of your home minus what you owe on it. Many people who are filing for bankruptcy have little if any equity in their home. This makes the house exempt, meaning it won’t be sold in the bankruptcy process. But if you have more equity in your home, you may have to sell your house to pay on the debt owed.
- If you can afford to pay your mortgage: If you did get to keep your home through the bankruptcy process, it’s yours if you pay for it. But, if you can’t afford the payments, the mortgage company or bank may foreclose on your home.
Other exempt property under Chapter 7 may include your work vehicle, work equipment, Social Security checks, Veteran’s benefits, pensions, welfare, and retirement savings. Items which would be non-exempt under Chapter 7 are bank accounts, stock investments, coin or stamp collections, cash, a second car or second house. These items would be liquidated, and the money used to repay lenders what is owed.
Can you file bankruptcy more than once?
Yes, you can file for bankruptcy more than once. But, according to changes in the Bankruptcy Code, implemented in 2005, you must wait between filings. If you have a Chapter 7 discharge, you can’t file again under Chapter 7 for eight years.
Why might a person declare personal bankruptcy?
There are several reasons why a person would file personal bankruptcy. Here are some:
- Large medal expenses
- Overwhelming credit card debt
Debt may be causing disruption in your personal and work life. You may be considering removing money from retirement accounts to pay for debts. You also may have tried other methods to control debt, but it’s still increasing each month.
How to prevent bankruptcy?
While bankruptcy is sometimes the only option, there are ways to prevent it:
- Sell your assets
- Take another job
- Learn to cut expenses
- Consolidate your loans
- Call your creditors, discuss the situation and work out an alternate payment schedule
- Take a second mortgage or reverse mortgage
If you are thinking about filing bankruptcy, make sure to have a bankruptcy attorney so the best option can be decided for you.
Filing for Bankruptcy Summary
No one ever wants to be faced with the decision to file for bankruptcy, but this guide should take some of the stress out of the process. As an individual you’d have to choose between filing for Chapter 7 or Chapter 13, and the cost will be between $300-$400 without attorneys fees.