What Is Filing Bankruptcy?
Filing bankruptcy is a legal term that most people have heard of, but might not know exactly what it means. They know it has something to do with money and not having enough of it. Beyond that, many people are unclear about the details of filing for bankruptcy. Just what is filing bankruptcy, and who should go through with it? What are the benefits and drawbacks of filing for bankruptcy? Deciding whether or not to go through with a bankruptcy filing is a major life decision. A bankruptcy attorney can help you decide whether or not to file for bankruptcy and if so, guide you through the process.
What Is Bankruptcy?
Bankruptcy is a legal procedure that protects individuals and businesses who are heavily burdened with debts they cannot reasonably expect to repay. Filing for bankruptcy helps them to start over financially. The bankruptcy court will determine a plan that may partially pay off some debts and dismiss others, leaving the person filing for bankruptcy clear of most debts. This is most commonly done in one of two ways: by filing for Chapter 7 or Chapter 13 bankruptcy. Here is a brief overview of the two:
Under this type of bankruptcy, some of the debtor’s property will be sold, or liquidated, in order to repay the debts. Certain property is protected, such as the individual’s home, furniture, and clothing. Unsecured debt, such as credit card debt, is wiped out.
Under this type of bankruptcy, the court will determine a three to five year repayment plan. This plan is based on the debtor’s total debt burden, income, and what the creditors would have been repaid under Chapter 7 bankruptcy. One advantage to Chapter 13 bankruptcy is that the debtor can retain his or her property.
Under either Chapter 7 or Chapter 13 bankruptcy, they eventually clear the debtor of most debt and will have a fresh financial start. Certain type of debt, however, can never be dismissed. This debt includes:
- Student loans
- Child support
- Federal, state, and local tax payments
Who Can File For Bankruptcy?
People can file for bankruptcy when their debt burden is much higher than their income, such that they cannot realistically expect to repay it. This can happen from irresponsible spending or because of a sudden change in finances from a divorce, serious illness, death, or job loss. Payments that were once manageable become out of reach. If you are trying to decide whether or not to file for bankruptcy, a good rule of thumb is that if it will take you more than five years to repay your debts (not including mortgage debt), then you should consider bankruptcy as an option. Still have a steady income? You may be able to file for Chapter 13 bankruptcy. If not, Chapter 7 may be the right choice. A bankruptcy lawyer can advise you on whether or not bankruptcy is a good choice for you.
Drawbacks to Bankruptcy
While filing for bankruptcy provides people a chance to start over financially, it comes at a cost. You will have to pay court and other legal fees. It can be time consuming and stressful. Bankruptcy filing will negatively affect your credit rating for several years, and you may lose some of your property. That being said, if you have bills you truly cannot repay, bankruptcy may be the best choice for you.
The attorneys at Bartifay Law Offices have years of experience in assisting people with bankruptcy. If you are wondering “What is filing bankruptcy?,” reach out to our staff today.