Guide to Filing Bankruptcy: Knowing Your Options
The mere word “bankruptcy” is enough to fill the most responsible person with dismay. Unfortunately, there are times when there are simply no other good options. Long term unemployment, excessive medical bills and even divorce can all lead to bankruptcy. However, it is possible to plan and prepare.
Bankruptcy: Before, During and After
Before considering bankruptcy, it is helpful to do an overview of the current status of finances. This is helpful because it allows the debtor to determine exactly what is owed and will help them develop a strategy for bankruptcy. Keep in mind that there are two chapters of bankruptcy for individuals, Chapter 7 and Chapter 13. Chapter 7 has a means test while Chapter 13 is based on a repayment schedule.
Once a bankruptcy discharge is finally in sight, most debtors begin focusing on their current credit rating. This means that they either have a perfectly clean slate (Chapter 7) or they are making their last payment on their Chapter 13 filing. The decisions that need to be faced are still fairly challenging but not impossible to overcome.
Starting over again also means credit decisions are much more complicated for most debtors. It will be more challenging to get credit cards, purchase a home or car and may also have an impact on career choices. Having an understanding of how the decision to file bankruptcy will impact your finances today, during bankruptcy and after bankruptcy will help you make the right decision for your individual circumstances.
Understanding what you owe and who you owe it to will help you with the bankruptcy process. In order to develop a plan for repayment (in the case of Chapter 13) or a discharge of debts (in the case of Chapter 7) you will need to have this information in order.
Bankruptcy laws are very confusing. Understanding what the bankruptcy chapters are and how each is used is crucial. This article talks about the various bankruptcy chapters and what the basic rules are for each of them.
Chapter 7 Bankruptcy (Discharge of debts)
In order to file for Chapter 7 a debtor must meet certain requirements. These requirements are met through the use of a means test. Before determining if Chapter 7 is the right method, your assets and your debts must be compared. If you owe more than you own, chances are that you will meet the means test.
Chapter 13 Bankruptcy (Reorganization of debts)
For debtors who do not quality for Chapter 7, the option of Chapter 13 is available. This method of filing bankruptcy allows the debtor to create a plan to repay their debts over time, often resulting in lower monthly payments. Chapter 13 debts are typically paid for over a period of three to five years depending on the amount of debt and income.
Sometimes it seems like with overwhelming debt already hanging over your head that having to come up with the money to file for bankruptcy is just another debt to deal with. Many debtors find that it is possible to file bankruptcy without going into additional debt by simply not paying some debts that would be due the month they would file. Others find that they can avoid high costs by filing on their own without an attorney.
If you work in a financial institution or on a job where you are required to be bonded, filing bankruptcy may create some problems. However, this does not have to be the case. Make sure that you find out about bonding and bankruptcy filings since bonding companies do check your credit report.
While bankruptcy filings will not result in student loan debt being wiped out (regardless of the type of bankruptcy), those who are filing Chapter 13 can have the debt restructured to be more affordable. Learn more details in this guide.
Imagine that you think that you have found all of your outstanding obligations and filed for bankruptcy and then find out you overlooked a bill (or two). Make sure you read through the challenges associated with adding debts on to an existing bankruptcy filing.
Many debtors think that a creditor does not have any recourse during the bankruptcy process. This is false and misleading as any creditor may object. In this instance, the debtor may be able to negotiate a settlement amount in return for not having a bankruptcy on record with that creditor. Understanding the laws and rules that apply to these negotiations is helpful for the debtor.
The news is good! Yes, if you have met the terms of your bankruptcy, you are free to sell your home at any time. This may not be the case during bankruptcy so it is important to understand the rules as they may apply to your individual case.
It would be wonderful if filing bankruptcy meant a clean credit report. However, like unpaid debts, bankruptcy will be a black mark on your credit report for a period of seven years. Understanding the impact on your credit is imperative since the ramifications are long term.
While there is a black mark on your credit report, this does not mean that it is impossible to get credit. What it does mean is that you will have to be more cautious with your credit and will likely pay a higher rate of interest. However, the sooner you reestablish your credit, the better you will fare in the long run.
Some people feel that if they have filed for bankruptcy that it is impossible to get a home mortgage for at least seven years. The good news is that this is not necessarily true. Many lenders will allow a home purchase in as little as two years provided that the borrower has a stable income and has met their obligations during that time.