WHAT IS BANKRUPTCY?

Bankruptcy is a legal tool designed to provide a fresh start to individuals or businesses who have become overwhelmed with debt. The process involves eliminating all or a portion of the debt, while simultaneously providing creditors an opportunity for repayment. Bankruptcy laws were written to provide a second chance to people whose finances have collapsed, whether due to bad decision-making or bad luck.

HOW DOES BANKRUPTCY WORK?

Bankruptcy is a legal process involving the examination of the assets and liabilities of individuals or businesses who have more debt than they can afford to pay. A determination is made regarding how those debts will be repaid or discharged. Filing for bankruptcy prevents creditors from attempting to collect on debts outside the process of the bankruptcy filing itself. The process is overseen by federal bankruptcy courts, and the rules are outlined in the U.S. Bankruptcy Code. There are various types of bankruptcy, commonly referred to by their chapter within the U.S. Bankruptcy Code, the most common of which is Chapter 7. Bankruptcy can be a complex process and there are certain eligibility requirements that must be met. 

WHAT WILL BANKRUPTCY COST?

The overall cost to file for bankruptcy varies depending on a number of factors. To start, all bankruptcy filers must pay a fee to file a petition to the court. This fee is fixed at $335 for Chapter 7 filing and $310 for Chapter 13. 

In addition, filers are typically required to take part in credit counseling and/or complete a personal financial management course, ranging in price from $20-$100. 

Attorney fees account for a large portion of the overall cost of filing for bankruptcy. While you may choose to file “pro se”, or without the assistance of an attorney, it is not advisable as this route provides a much lower rate of success. Attorney fees can vary widely, depending on who you hire, where you live, and the complexity of your case. 

There are a number of additional factors that may increase the cost of filing for bankruptcy; such as if you are filing for business bankruptcy in addition to personal bankruptcy, previous bankruptcies, having multiple streams of income and having an extensive number of creditors.

IS MY HOUSE SAFE DURING BANKRUPTCY?

Most people that declare bankruptcy are able to keep their homes throughout the process, but some are not. There are a few factors that determine the probability of keeping your home during bankruptcy proceedings:

  • The type of bankruptcy you file
  • The amount of equity in your home
  • Whether or not your mortgage is current and if you’ll be able to continue making the payments after bankruptcy

If you’re caught in a financial downfall, it may seem like there is no way to improve your situation. We can help you identify the best steps to take, even if you’re facing the prospect of losing your home.

WHAT DEBTS ARE COVERED IN CHAPTER 7 BANKRUPTCY?

Most debts are discharged under a Chapter 7 bankruptcy. Including the following:

  • Credit card debt from repossessions
  • Debt from personal loans
  • Business loans
  • Foreclosures
  • Debt from old utilities
  • Closed and cancelled phone accounts
  • Back rent for an old apartment (where you no longer live)
  • Debt from law-suits and judgments that do not involve fraud
  • Some tax debt 
  • Some debt from overpayments of unemployment insurance
  • Other social services and many other kinds of debts
WHAT DEBTS ARE NONDISCHARGEABLE (OR NOT COVERED) IN CHAPTER 7 BANKRUPTCY?

You should speak with an expert bankruptcy attorney to determine whether your debt is dischargeable or not.

  • Student loans debt from fraud
  • Debt from sales tax or employee withholdings
  • Debt from fines (parking, speeding, or other violations)
  • Debt from child support or alimony obligations
  • Debt (most of the time) that you are obligated to pay by a divorce agreement or order
HOW LONG DOES FILING A CHAPTER 7 BANKRUPTCY TAKE?

Generally, the Chapter 7 process can be completed in three to six months. The amount of time it takes to complete the chapter 7 process will vary depending on your local court in addition to a number of other factors. Here are some typical situations that could cause a delay in the Chapter 7 bankruptcy process: 

  • The trustee needs additional information or documents
  • The trustee must sell property
  • A creditor requests information
  • You’re involved in a bankruptcy-related lawsuit
  • You delay your personal financial management course
HOW LONG DOES A BANKRUPTCY STAY ON YOUR CREDIT REPORT?

Bankruptcy can provide you with a fresh start, but it can have a serious, long-term effect on your credit. Bankruptcies are deleted from your credit report based on the filing date, not the discharge date. 

  • A Chapter 7 bankruptcy will stay on your credit report for 10 years. 
  • A Chapter 13 bankruptcy will stay on your credit report for 7 years. 

The accounts included in the bankruptcy are typically removed from your credit report sooner. 

SHOULD I FILE FOR BANKRUPTCY?

Filing for bankruptcy may prevent or delay legal actions creditors use to collect debts but it can significantly impact your future ability to use money and obtain new lines of credit. 

When You file Chapter 7 bankruptcy, you are essentially telling the government:

  • I have no way to repay my creditors.
  • I have no assets that I can sell to repay my creditors.
  • I borrowed the money with intent to repay it, but my situation has changed and I am no longer able to meet my financial obligations.

Filing for bankruptcy should be considered a last resort and it’s important to speak with a professional to understand all of your options. There are a number of the things to consider when deciding your next steps.

Here are 8 signs that indicate you should consider filing for bankruptcy:

  • Your monthly income is below the median level in your state.
  • Your debts total more than half your annual income.
  • It would take five years (or more) to pay off your debt, even if you took extreme measures.
  • You have little to no disposable income.
  • You’ve exhausted your savings.
  • You can no longer afford your monthly payments.
  • You have lawsuits from one or more debt collectors.
  • Financial worries are having a significant impact on your well-being.

Bankruptcy Terms to Know

Bankruptcy – A legal process for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of the United States Bankruptcy Code.

Creditor – One to whom the debtor owes money or who claims to be owed money by the debtor.

Debtor – An individual who has filed a petition for relief under the Bankruptcy Code.

Discharge – A legal release of a debtor from personal liability for specified dischargeable debts.

Dischargeable debt – A debt that can be eliminated in accordance with the Bankruptcy Code.

Exemptions – Exempt property is property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors.

Liquidation – A sale of a debtor’s property with the proceeds to be used for repayment to creditors.

Means test A qualification process used to determine whether an individual debtor’s chapter 7 filing is permissible. 

Nondischargeable debt – A debt that cannot be eliminated in bankruptcy.

Trustee – The trustee is a private individual or corporation appointed as the representative of the bankruptcy estate.

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