Bankruptcy: Expectations vs. Reality
When people hear the word bankruptcy, they think “fresh start”. While they aren’t completely wrong, it’s generally never that simple. Filing for bankruptcy can be very confusing, time-consuming, and expensive. The two types of bankruptcy an individual can file for personal debt with bankruptcy forms are either chapter 7 or chapter 13. If you own a business, you are eligible to file for chapter 11 bankruptcy. If an individual owns a farm or is a fisherman they can file chapter 12.
Bankruptcy Forms: What Can and Cannot Be Stopped
Filing for bankruptcy can put a hold on the foreclosure of a home, repossession of property, and garnishment of an individual’s wages. It also puts a hold on creditors calling or even attempting to sue for any unpaid debt. However, there seem to be more things that bankruptcy cannot put a hold on. Student loans, government debt (taxes/fines), child support, alimony, large ticket items bought shortly before filing, are all things that cannot be stopped once you’ve filed. So against popular belief, filing for bankruptcy does not cancel out all debt.
Discharge of Debt
Another popular belief of bankruptcy is that an individual’s debt is simply forgiven. This is incorrect. Each bankruptcy case is different and only a judge can determine which debt can and cannot be discharged. When individual files for chapter 13 bankruptcy, the court will put them on a strict monthly repayment plan and budget that is monitored. Over the course of 3 to 5 years, the individual will repay either some or all of their debt while keeping their assets.
An individual must have a steady income in order to file for chapter 13 bankruptcy. Now, when filing for chapter 7 bankruptcy an individual’s debt can be forgiven but said individual is forfeiting a majority of their assets in order to do so. The courts can order for assets to be sold off in order to pay off debt. Doing this an individual runs the risk of losing their car or even their home.
Credit Score & Reputation
No one is mistaken that filing for bankruptcy has a large impact on an individual’s credit score and reputation. Once bankruptcy is filed for, an individual’s name and all personal information regarding the case is made a public record. In addition to an individual’s business being public knowledge, their credit score will take a significant hit. Chapter 13 bankruptcy will stay on a credit report for 7 years while chapter 7 will stay on a report for 10. Filing for bankruptcy can also affect an individual’s chances of purchasing a home. For up to 4 years, anyone who has filed for bankruptcy could potentially have issues qualify for a mortgage.
The Cost of Filing
Filing for bankruptcy can become very expensive very quickly. Bankruptcy forms alone costs money. To simply fill out papers for chapter 13 an individual will pay $310. To file chapter 7 it will cost $335. That doesn’t include the lawyer fees. To hire a lawyer for bankruptcy proceedings the fees can range anywhere from $835 to $3835.
Before Filing for Bankruptcy
Before an individual takes the plunge and files for bankruptcy they might want to take a step back and regroup. Some creditors may be willing to work with debtors, lowering interest rates and adjusting terms of repayment. Financial coaching could also be an alternative to the filing. Having a third party perspective may be what an individual needs to see where they can cut costs and help repay debt. If all else fails and bankruptcy is filed, an individual will need a list of all debt and the paperwork to verify the unpaid balance. This list will come in handy when meeting with a lawyer to start planning for financial bankruptcy.
At Bartifay Law Offices, we know how important it is to get all the details before filing for bankruptcy. Call us today and schedule a meeting with one of our professionals to discuss your case.