The 7 Most Common Questions About Bankruptcy
If you’re struggling with thousands of dollars in debt, you aren’t generating much income, and you consistently fail to make payments, bankruptcy might enter your mind as an option to move forward. On the surface, bankruptcy seems like a get-out-of-jail-free card, capable of forgiving all your debts so you can move on with your life, but unfortunately, it’s not that simple.
Before you can even think about declaring bankruptcy, it’s important to understand exactly what it entails. Reviewing some commonly asked questions about bankruptcy can help you learn a little more about it.
Common Bankruptcy Questions
These are some of the most commonly asked questions regarding bankruptcy in the United States:
What is bankruptcy? Bankruptcy is the state of not being able to pay your creditors. After filing for bankruptcy successfully, your unsecured debts will be eliminated—this includes common types of debt like credit card debt, but not secured forms of debt like child support or tax debts. Some types of bankruptcy may also be able to eliminate liens on your property; liens are creditor’s rights to take portions of your property to repay a debt. However, bankruptcy can’t always eliminate all these liens, so creditors may still be able to take some of your property before the debt is wiped clean.
What types of bankruptcy are there? There are many different types of bankruptcy available in the United States, most of which are defined for different types of businesses and organizations. However, if you’re an ordinary consumer, the two main types of bankruptcy you should be thinking about are Chapter 7 and Chapter 13. Chapter 7 exists for individuals attempting to wipe out debts like credit cards or medical bills, and is generally reserved for people with little to no income. In these cases, any of your nonexempt property may be taken to repay as much debt as possible before wiping your debt clean.
Chapter 13 works somewhat differently, and is based on reorganization rather than liquidation. With Chapter 13, you’ll work with the courts and your creditors to come up with a repayment plan; you’ll get to keep all your assets, and you’ll negotiate terms to reasonably pay back all your debts on a monthly basis.
What happens to your debts and liabilities? This depends largely on the type of bankruptcy you’re filing and what types of debts you owe. Any unsecured debts, such as medical bills and credit card charges, will be eliminated with Chapter 7 bankruptcy. However, no matter what type of bankruptcy you file, certain types of secured debts will be exempt from your filing. Some of these debts include child support, alimony, tax debts, student loans, and certain types of secured credit card debt. As a general rule, if there’s a legal obligation for you to repay the debt, bankruptcy won’t release you from it.
How do you file? Though it is possible to file bankruptcy without an attorney, we highly advise that you seek legal counsel before moving forward with any bankruptcy plan. Working with an attorney, you may be able to find an alternative arrangement to pay back your debts that doesn’t necessitate formally filing. If you’re working together on renegotiating your debts and forming a better payment plan, and you’re still unable to move forward, you’ll need to file paperwork. There are specific forms you’ll need to file, which may vary based on your local jurisdiction—your attorney will be able to guide you in this process. Then, a judge will review your case and mandate a path forward, depending on the type of bankruptcy you’re filing.
What complications can arise in a bankruptcy case? Not all applications to file for bankruptcy are awarded cleanly or immediately. The outcomes of bankruptcy cases often depend on individual circumstances; for example, if you make a significant regular income, a judge may deny your ability to file Chapter 7 bankruptcy. The types of liens that are eliminated or kept may depend on your circumstances and your specific judge.
What will happen to my possessions? There’s a common misconception that once you file for bankruptcy, all your possessions are stripped away, including your home, and you’ll have to start everything from scratch. This isn’t necessarily the case. If you’re worried about losing your car, your house, or other possessions, there are options that can help you keep these in your possession. For starters, there are personal property exemptions that can prevent creditors from taking certain things from you. Even in Chapter 7 bankruptcy, creditors can’t take exempted items from you. In Chapter 13 bankruptcy, since you’ll be actively working to pay back all your debts, there will be no need for creditors to take any of your possessions.
How can you rebuild after filing for bankruptcy? There’s another misconception that filing for bankruptcy will brand you forever, leaving you incapable of building a new financial future for yourself; this isn’t true either. It’s true that filing for bankruptcy doesn’t look good on your credit report, and may inhibit your ability to find jobs, apartments, or loans in some cases, but in time, you can rebuild your credit and start a new life for yourself. Pay close attention to your credit report, pay all your bills on time, prevent the accumulation of any further debt, and in a few years, you’ll be back in good shape.
What to Do From Here
If you weren’t familiar with bankruptcy before, this is a lot of new information to take in. Spend some time familiarizing yourself with how bankruptcy works, and take an audit of your current financial situation before moving forward.
If you’re interested in learning more about whether bankruptcy is right for you, or if you’re ready to seek legal counsel for your bankruptcy claim, contact us at Rowdy Williams. Schedule a meeting today and we’ll cover the most important details of the process.