The four most common reasons why people tend to file for bankruptcy are being unemployed, being unable to deal with large medical expenses, having seriously overextended their credit, and having marital problems. Also, you can go bankrupt in two ways. The first and most common one is when you file for bankruptcy voluntarily; the second, when your creditors request the court to issue an order for a personal bankruptcy.
Will you automatically lose all your property when you file for bankruptcy?
You won’t because there is such a thing as a bankruptcy exemption. This allows you to protect property that is vital for you to live and work. This would include your furniture, clothing, and, if you drive an inexpensive car, you might be able to keep that as well.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy allows you to erase your credit card, medical, and other unsecured debt. In almost all cases, people who file Chapter 7 are permitted to keep their property. This type of bankruptcy can be filed once every 8 years.
In a Chapter 13 bankruptcy, you would pay back your debt through a trustee. Your monthly payment is calculated based on how much you are able to pay. Your actual income and your expenses are taken into account when determining the repayment plan.
What is the process for filing for bankruptcy?
Put Together All Your Documents
Gather all financial documents and a copy of your credit report. Make a list of all your debts which might include medical bills, personal and payday loans, back taxes and more. Your bankruptcy lawyer will also need a copy of your last two tax returns, proof of your income, bank statements, valuations of any real estate you own, and your car’s registration. This will help them get a clear picture of your financial situation.
Attend a Bankruptcy Counseling Session
Two obligatory credit counseling sessions must be taken by everyone filing for bankruptcy before the petition is filed with the court, whether you file for Chapter 7 or Chapter 13. The purpose of these sessions is to help you decide whether you actually want to go through with the bankruptcy filing or if there is another way for you to get back on your feet.
File for Bankruptcy with the Court
At this point, your bankruptcy attorney will file your case with the court. This makes the bankruptcy appear on your credit report and has the effect of having all collection activities against you stopped.
Repayment or Liquidation Starts
If you opted for Chapter 7 bankruptcy, the next step involves the liquidation of your assets of value to creditors. If you have no assets, the court will not sell your property. If you went with a Chapter 13, you will start the repaying portion of the bankruptcy process.
Let your attorney know if you have any secured debts (such as a car or a house) that you want to keep. Continue making the monthly payments to cover those assets.
Attend a Debtor Education Session
You must fulfill this requirement for your debts to be discharged.
Your bankruptcy law firm will explain to you how bankruptcy removes your debt and the attached obligations to pay your creditors. At this point in the process, you should start feeling the weight lift off your shoulders. Keep in mind, however, that bankruptcy is not the end of the road, it is just a detour from the road you had taken before and a new one in which you will slowly start rebuilding your credit.