FAQ Bankruptcy

FAQ Bankruptcy

What is bankruptcy?

Bankruptcy is a legal process that helps people who are unable to repay their debts. It provides a fresh start by either eliminating or restructuring your debts. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13.

Chapter 7 is known as liquidation bankruptcy. It eliminates most of your unsecured debts, such as credit card debt, medical bills, and personal loans. However, you may have to surrender some of your assets, such as your car or home, to pay off your creditors.

Chapter 13 is known as reorganization bankruptcy. It allows you to keep your assets and create a plan to repay your debts over a period of 3 to 5 years. You must make regular payments to your creditors, and you may be required to sell some of your non-exempt assets.

How do I know if I should file for bankruptcy?

There are several factors to consider when deciding whether or not to file for bankruptcy. Some common signs that you may need bankruptcy relief include:

  • You are unable to pay your minimum monthly debt payments.
  • You are being harassed by creditors.
  • You have been sued by creditors.
  • You are facing foreclosure or repossession.
  • You are overwhelmed by debt and are feeling hopeless.
What are the benefits of filing for bankruptcy?

There are many benefits to filing for bankruptcy, including:

Elimination of debt: Bankruptcy can eliminate most of your unsecured debts, giving you a fresh start.

Stop creditor harassment: Bankruptcy stops creditors from harassing you, such as by calling you or sending you letters.

Protection from lawsuits: Bankruptcy protects you from lawsuits by creditors.

Keep your assets: You may be able to keep your assets, such as your car or home, if you file for Chapter 13 bankruptcy.

Improve your credit score: Filing for bankruptcy can actually improve your credit score in the long run.

What are the drawbacks of filing for bankruptcy?

There are also some drawbacks to filing for bankruptcy, including:

Damage to credit score: Bankruptcy will damage your credit score, but it will not stay on your credit report forever.

Loss of assets: You may have to surrender some of your assets, such as your car or home, if you file for Chapter 7 bankruptcy.

Cost: There is a filing fee to file for bankruptcy, and you may also have to pay attorney’s fees.

What should I do before filing for bankruptcy?

Before filing for bankruptcy, you should:

Gather your financial documents: Gather all of your financial documents, such as your credit card statements, bank statements, and pay stubs.

Meet with a bankruptcy attorney: Meet with a bankruptcy attorney to discuss your options and get advice on the best type of bankruptcy for you.

Create a budget: Create a budget to show how you will manage your finances after bankruptcy.

Take a credit counseling course: Take a credit counseling course to learn how to manage your debt and improve your credit score.

What can I expect after filing for bankruptcy?

After filing for bankruptcy, you will have a meeting with a trustee, who will review your financial information and ask you questions.

If you file for Chapter 7 bankruptcy, your assets will be liquidated, and the proceeds will be used to pay your creditors.

If you file for Chapter 13 bankruptcy, you will make monthly payments to a trustee, who will distribute the payments to your creditors.

How long does it take to file for bankruptcy?

The length of time it takes to file for bankruptcy depends on the type of bankruptcy you file.

Chapter 7 bankruptcy typically takes 3 to 6 months to complete.

Chapter 13 bankruptcy typically takes 3 to 5 years to complete.

How much does it cost to file for bankruptcy?

The cost of filing for bankruptcy depends on several factors, including the type of bankruptcy you file, the complexity of your case, and whether or not you hire an attorney.

The filing fee for Chapter 7 bankruptcy is $338, and the filing fee for Chapter 13 bankruptcy is $313.

Do I need an attorney to file for bankruptcy?

You are not required to have an attorney to file for bankruptcy. However, it is highly recommended that you hire an attorney to help you with the process. An attorney can help you understand the bankruptcy laws, protect your rights, and ensure that your case is filed correctly.

What are the alternatives to bankruptcy?

Bankruptcy is a legal process that helps individuals struggling with overwhelming debt eliminate or restructure their debts to gain a fresh start. While bankruptcy can be a viable option for many, there are several alternatives that may be more suitable or preferable depending on your specific circumstances. Here are some of the most common alternatives to bankruptcy:

  • Debt consolidation: Debt consolidation involves combining multiple debts into a single loan with a lower interest rate. This can simplify your debt management, potentially reduce your monthly payments, and make it easier to track your progress.
  • Debt management plan (DMP): A DMP is a structured program that allows you to make fixed monthly payments towards your unsecured debts, such as credit card bills and personal loans. Credit counseling agencies often manage DMPs and negotiate with creditors on your behalf to reduce your interest rates and waive fees.
  • Debt settlement: Debt settlement involves negotiating with creditors to agree to settle your debts for less than the full amount owed. This can significantly reduce your debt burden, but it may also negatively impact your credit score. Debt settlement is generally considered a last resort option and should be approached with caution.
  • Credit counseling: Credit counseling services provide personalized guidance and support to help you understand your debt situation, develop a realistic budget, and create a plan for managing your debt. They may also offer assistance in negotiating with creditors or developing a DMP.
  • Selling assets: Selling non-essential assets, such as a car, boat, jewelry, or collectibles, can provide a lump sum of cash to pay down debt. However, this option may not be feasible for everyone or may require parting with valuable assets.
  • Increasing income: Increasing your income through additional work, side hustles, or career advancement can improve your ability to manage debt. This could involve taking on a part-time job, freelancing, monetizing hobbies or skills, or seeking opportunities for promotion or salary increases.
  • Budgeting and expense reduction: Carefully reviewing your expenses and making lifestyle adjustments to reduce spending can free up more money to pay towards debt. This may involve creating a detailed budget, tracking expenses, cutting back on unnecessary spending, and finding ways to save on essential expenses like housing, transportation, and utilities.
  • Seeking financial aid: If you are facing hardship due to job loss, medical expenses, or other unforeseen circumstances, you may be eligible for financial assistance programs through government agencies or non-profit organizations. These programs may provide grants, loans, or other forms of assistance to help you manage your debt and meet your basic needs.
This article is for general informational purposes only and is not legal advice. Contact us today to discuss your specific situation.