If you’re struggling to pay off your debts and don’t see a way out, filing for bankruptcy might be an option for you. While it’s not an easy decision to make, understanding the process and what happens when you file for bankruptcy can help ease some of your concerns.
In this guide, we’ll discuss everything you need to know about filing bankruptcy including the types of bankruptcy, the eligibility requirements, the steps involved in filing, and what you can expect after filing.
Thinking About Declaring Bankruptcy?
Declaring bankruptcy is a significant decision that comes with a number of consequences. Primarily, a bankruptcy declaration allows for debt relief, particularly for unsecured debt like credit card bills and medical expenses, which are typically wiped out in the process. However, secured debt, such as mortgages and car loans, are not usually affected and you may still be obligated to pay them.
Bankruptcy is a legal process that involves serious implications for your credit report. It can stay on your report for up to 10 years, impacting your ability to obtain future credit, rent housing, or even secure a job. Despite this, it’s sometimes the best option for those buried under insurmountable debt.
Before deciding to declare bankruptcy, it is advisable to consider other debt management options, such as credit counseling or a debt consolidation loan. Credit counseling can provide valuable guidance on budgeting and debt management, while a debt consolidation loan can simplify your debts into a single, manageable payment. These alternatives may help individuals tackle their debt without the long-lasting effects on their credit report that bankruptcy can inflict.
Types of Bankruptcy
There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. Each type has its own eligibility requirements and consequences.
Chapter 7 Bankruptcy
Also known as liquidation bankruptcy, Chapter 7 is the most commonly filed type of bankruptcy. It involves selling off non-exempt assets to pay back creditors and eliminating most or all remaining debt.
To be eligible for Chapter 7 bankruptcy, you must pass a means test that compares your income to the median income in your state. If you make less than the median income, you are likely eligible for Chapter 7. If not, you may have to file for Chapter 13.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also referred to as a wage earner’s plan, involves creating a repayment plan to pay off your debts over three to five years. This type of bankruptcy is typically sought by those who do not qualify for Chapter 7 or have significant assets they want to protect.
To be eligible for Chapter 13 bankruptcy, you must have a regular income and your debt must not exceed certain limits. Additionally, you will need to submit a repayment plan to the court showing how you intend to pay off your debts over the designated period.
How Do I Declare Bankruptcy?
Declaring bankruptcy is a legal process that often starts with a consultation with a bankruptcy lawyer. They can guide you through the complexities of the bankruptcy process and help you determine if it is the best course of action for your financial situation. If you decide to proceed, the next step in the bankruptcy filing is to complete a means test, supplied by the federal bankruptcy court, to identify your eligibility for Chapter 7 or Chapter 13 bankruptcy.
Once eligibility is established, you or your lawyer will need to gather the necessary financial documents detailing your debts, assets, income, and expenses. This information is then used to prepare your bankruptcy petition and supporting documentation. Once your bankruptcy filing is compiled, your lawyer will file it with the court. The filing date is crucial as it marks the beginning of the bankruptcy process and invokes an automatic stay that halts most collection actions against you.
Following the filing, a court-appointed bankruptcy trustee will arrange a meeting of creditors where they can ask you questions about your financial status and the accuracy of your filing. You are required to attend this meeting.
Next, depending on the type of bankruptcy you’re filing, you may need to devise a repayment plan (Chapter 13 bankruptcy) or await asset liquidation (Chapter 7 bankruptcy). Any filing fees associated with these steps will be explained to you by your lawyer or the court.
Finally, before your debts can be discharged, you are required to complete an approved credit counseling course. This marks the end of the filing process, leading to the eventual resolution of your case. It’s key to remember that while this process offers a fresh start, the decision to file bankruptcy should be taken with the understanding of all potential repercussions.
What Happens In Bankruptcy Court?
In the bankruptcy court, a series of legal events, known as bankruptcy proceedings, take place. Managed by federal bankruptcy courts, these procedures are designed to resolve a bankruptcy case and offer a fair outcome to all parties involved. During these proceedings, debtors – the people who owe money – present their financial situation in detail. Creditors, or those to whom money is owed, also participate in this process.
The court first reviews the debtor’s assets and liabilities. Then, a bankruptcy trustee, appointed by the court, scrutinizes the documents related to the debtor’s finances. If any discrepancies are found, legal action may be initiated. The court also assesses the debtor’s ability to pay off their debt.
Creditors are allowed to challenge the debtor’s bankruptcy claim, and they can argue against the discharge of certain debts in court. The court then decides which debts will be discharged and which will be repaid, either in part or in full.
Eventually, the bankruptcy proceedings aim to devise a fair plan for debt repayment, or if feasible, complete debt discharge. The court’s decisions are made keeping in mind the best interests of both the debtor and creditors. The conclusion of the bankruptcy case typically provides a much-needed financial fresh start for the debtor, albeit with serious implications for their credit score.
Do I Need A Bankruptcy Attorney?
Hiring a bankruptcy attorney can significantly ease the burden of navigating through bankruptcy law and the associated complicated process of bankruptcy filings. An attorney who is proficient in bankruptcy law can provide a wealth of knowledge and guidance. They can handle your case efficiently, as they are familiar with the nuances of federal court procedures and bankruptcy laws.
This is particularly beneficial when dealing with complex aspects such as devising a suitable repayment plan or understanding the array of forms and documents required to file bankruptcy. An attorney can also help you understand the implications of attorney fees and other costs associated with the process. Remember, the journey of bankruptcy is not an easy one, and hiring an experienced attorney can provide you with the necessary support and expertise to facilitate your path toward financial stability.
Joshi Law Group Knows Bankruptcy Law
At Joshi Law Group, we understand the trials of struggling with overwhelming debt and the challenging decision to declare bankruptcy. Our dedicated team of bankruptcy lawyers in San Diego is here to help guide you through the process of filing bankruptcy and to offer a path to debt relief. With our extensive knowledge of bankruptcy proceedings, we can ensure that you fully understand every step along your journey to regaining control over your financial life. We’ll walk you through the process, from meeting with a credit counseling agency to developing a feasible plan to pay creditors.
We aim to help you avoid bankruptcy if possible, preserving your credit history and preventing severe financial repercussions. However, if bankruptcy is indeed your best option, we will stand by your side, ensuring you have the best representation and advice along the way. Our seasoned team is deeply familiar with the complexities of bankruptcy law, and we’re committed to providing the highest level of legal assistance. For anyone considering bankruptcy, the assistance of a competent bankruptcy lawyer is not just beneficial—it’s crucial.
So, don’t traverse this complex process alone. Allow Joshi Law Group to guide you in this challenging time. We are here to provide the support and expertise you need to navigate the landscape of bankruptcy and lead you toward a financially stable future. Reach out to us today—let’s start your journey to financial freedom together.
Frequently Asked Questions
What impact does bankruptcy filing have on my credit card debt?
When you file for bankruptcy, most of your credit card debt is usually discharged, meaning you no longer have the legal obligation to pay it. However, there are some exceptions to this rule. For example, if you made luxurious purchases or cash advances shortly before filing for bankruptcy, those debts may not be discharged.
What is the difference between secured and unsecured debt in bankruptcy?
Secured debts are those tied to an asset, like a car loan or a mortgage. If you don’t pay these debts, creditors can reclaim the asset. Unsecured debts, like most credit card debt and medical bills, don’t have assets tied to them. In bankruptcy, most unsecured debts can be discharged, while secured debts usually cannot.
How does a bankruptcy filing affect my credit report?
A bankruptcy filing can significantly impact your credit report. It remains on your credit report for up to seven years in the case of Chapter 13 bankruptcy, and up to ten years for Chapter 7 bankruptcy. This can make it more difficult to get credit, buy a home, or even get a job.
What is the impact of bankruptcy on my credit scores?
Bankruptcy can have a severe impact on your credit scores. The exact effect will depend on multiple factors, including the condition of your credit before bankruptcy. Nevertheless, with time and responsible credit behavior, you can start to rebuild your credit.
Are unpaid taxes and student loans dischargeable in bankruptcy?
Bankruptcy often does not discharge certain types of debt, including most tax debts and student loans. However, unpaid income taxes can be discharged if they are for a tax return that was due at least three years before you filed for bankruptcy, and the return was filed at least two years before your bankruptcy filing.
Can I keep my personal property after filing bankruptcy?
Whether you can keep your personal property after filing bankruptcy depends on the bankruptcy chapter you file and the exemptions you use. In many cases, debtors can keep their personal property, but it can vary from case to case.
Does bankruptcy provide debt relief for all types of debt?
No, bankruptcy does not provide relief from all types of debts. Secured debts, most student loans, child support, alimony, and many types of tax debts are typically not dischargeable in bankruptcy. It’s important to understand the specifics of your situation and the bankruptcy laws in your state.