At one point or another, many Americans are forced to wonder what happens when you declare bankruptcy.
Whether a job loss, illness, divorce or an unexpected turn of events has you looking at bankruptcy, here's your guide to understanding the process.
What Is Bankruptcy?
When a person is unable to pay their debts with their existing assets and income, they are considered to be bankrupt. Filing for bankruptcy can stall foreclosure and debt collection proceedings, and to eliminate most of your debt. It can also reorganize your debt to enable you to catch up on missed payments while retaining your assets and property.
There are several types of bankruptcy. The type of case you file depends on your situation and your goals for filing. The two most common options are Chapter 7 and 13.
Chapter 7: Also known as straight bankruptcy, Chapter 7 is the most common. This type may result in the sale of certain non-essential assets and the proceeds are used to pay off your debt. This can be a quick and easy restart for many people who have gotten in over their heads through divorce, unexpected expenses or job loss.
Chapter 13: Known as reorganization bankruptcy, Chapter 13 buys the filer time to pay off their debt without risk of collection or foreclosure, and after the repayment period, the rest of the debts are discharged. The large bonus to this type is that filers get to keep their personal possessions, but you must meet certain eligibility requirements.
What Happens When You Declare Bankruptcy?
When you file for bankruptcy, you will be protected by an automatic stay, which means creditors cannot begin or continue debt collection actions while it's in place.
Interestingly enough, bankruptcy isn't free. A filing fee of several hundred dollars is paid to the court to file a case. While a lawyer is an additional fee, it's worth the cost. Navigating the complicated bankruptcy proceeding laws can be tricky and time consuming. An experienced lawyer can help make sure you do everything right and get the best outcome.
You may have to take a class or two to help you better manage your finances and credit.
A few weeks into proceedings, you'll be required to attend a creditor's meeting. You, the court, your bankruptcy lawyer and any creditors who care to attend will review your list of assets and debts.
What You Need to Know if You're Filing For Bankruptcy
Bankruptcy offers a solution to bleak financial situations and can be a much-needed reset, but you should be aware of the long-term effects. Bankruptcy may stay on your credit report for 7-10 years and can affect your chances of immediately obtaining any kind of credit-based financing.
The good news is that many people who have filed for bankruptcy still obtain new mortgage loans and lines of credit to help them rebuild.
Contact The Law Office of Marilyn Garner Today
If you are in a financial bind and need help understanding what happens when you declare bankruptcy, an experienced attorney can help you navigate the sometimes complicated proceedings.