For many people, filing for bankruptcy can seem like a failure. However, if unpayable debt is starting to affect your life, your family and your credit rating, bankruptcy may actually be your smartest choice. Filing for bankruptcy signals to creditors that you're serious about paying them back, but need some help. It comes with an automatic stay against debt collectors, which means that as soon as you file, it will be illegal for debt collectors to harass you. And in the hands of an experienced bankruptcy lawyer, the bankruptcy process can actually protect certain of your financial assets, including your home.
A bankruptcy is a legal process in which an individual or married couple asks the government to help them pay the debts they can pay and forgive (erase) the rest. You must first file a petition with the court in which you outline all of your financial assets and debts; your bankruptcy attorney will help you through this. Then, after a mandatory credit-counseling session, you will file for bankruptcy. The court will issue an automatic stay against your creditors, then appoint a trustee -- an impartial person who decides how and how much debt to pay off. You will either make payments or sell off valuable assets; certain assets, usually including your home equity and retirement account, are untouchable under the law. At the end of the process, the remaining debt will be discharged and you will start with a clean slate. A bankruptcy will remain on your credit report for seven to ten years, but you will have no more debt, no creditors and a chance at a fresh start.
Individuals and married couples seeking to file for bankruptcy have two choices: (Chapter 7) liquidation and reorganization (Chapter 13). To some extent, which type of bankruptcy you file depends on your situation. Some people have a choice; others don't. Very important is the type of debt you have -- secured or unsecured. Secured debt is debt that's tied to some sort of valuable collateral, like a home or a car; unsecured debt is debt without collateral, like credit card debt. The amount of debt you have is also important. Starting in October of 2005, new laws set specific tests determining which type of bankruptcy an individual may file. Your attorney can look over your financial assets and help you figure out which one to choose. And if you feel forced to choose an option you cannot afford, you may petition the court for an exception to these rules.
Chapter 7 Bankruptcy is designed for people with a lot of unsecured debt, especially if they don't have a home or other large financial assets to protect. In Chapter 7 Bankruptcy, your trustee sells all of your eligible assets over a relatively short period of time to pay off all the debt possible; the rest is discharged. The process can take as little as four months, depending on your circumstances.
The legal test for who may file Chapter 7 Bankruptcy is a complicated two-part test that compares your income to the median income for a similar family in your state, then compares it to the amount of debt you have. If the court decides that you have less than $100 in disposable income, after meeting your financial obligations and basic living expenses, you may file for Chapter 7 Bankruptcy.
Generally speaking, people with a steady income who just can't keep up with their debt, especially if they're homeowners, are routed to Chapter 13 Bankruptcy. Chapter 13 Bankruptcy filers must have less than $307,675 in unsecured debt and $922,975 in secured debt. In Chapter 13 Bankruptcy, your trustee evaluates your financial situation, then sets up a long-term payment plan with creditors. Over three to five years, you make the scheduled payments; the rest of your debt is discharged at the end. You keep your assets as long as you make your payments.
People with too much debt for Chapter 13 Bankruptcy may file for Chapter 11 Bankruptcy. Chapter 11 Bankruptcy is a more complicated reorganization used by businesses, which allows the individual to keep on working as normal during the bankruptcy. It can be longer than a Chapter 13 Bankruptcy and is governed by a committee of major creditors. Creditors also generally must approve your repayment plan, although a different one may be forced if it meets legal requirements.
The best way to choose the type of personal bankruptcy you file is to speak with an experienced bankruptcy attorney. It is legal to represent yourself in a bankruptcy, but experts don't recommend it, because a simple mistake can take away your legal protection against debt collectors, allow creditors to take away major assets or even result in criminal charges. It can also add stress, pain and expense to a life already complicated by financial problems. And a personal bankruptcy attorney doesn't have to be expensive. Because bankruptcy lawyers, by definition, serve clients in tough financial spots, most will work with you to set up payment plans or add their fees to your debt. And all of our bankruptcy lawyers offer free initial case evaluations. To be connected with an experienced bankruptcy attorney in your state, call us today or fill out our convenient online application.
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