Nowadays, we hear people declaring that they are filing for bankruptcy as a solution to get rid of their financial woes. This has led us to believe that filing for bankruptcy is our resort to fix our debt problems. People are unaware of what bankruptcy actually is. It is a “legitimate option” for the people, considered when an individual or a business can no longer meet their financial obligations, which are falling past their due dates.
It is your right, under federal law, to file for bankruptcy relief from your creditors. If you believe, that you have no other option but to file for bankruptcy, then here is some basic information to help you better understand bankruptcy before filing it. Remember that you can file bankruptcy only once in every six years, so read the following article carefully:
Types of Bankruptcy
You can apply for two kinds of bankruptcy depending on your financial standing. These two types are:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also called “fresh start” bankruptcy, or “liquidation.” Through this option, you can cancel all your debts, but the trustee must take your non-exempt property to pay to your creditors. However, you make an agreement with the trustee to buy it back.
Chapter 13 Bankruptcy
Also known as “reorganization,” or “Wage earner plan,” Chapter 13 bankruptcy allows you to keep valuable property, such as your home or car, which you might otherwise lose due to past due payments. Chapter 13 options will let you pay back the arrears from between three and five years, divided on regular monthly payments.
Benefits of Bankruptcy:
Every case of bankruptcy is different from the other and the laws for them change from time to time. Here are a few basic benefits that you can attain through bankruptcy:
- Legal discharge of debt payments
- Stopping of foreclosure of your home so that you catch up on missed payments
- No repossession of a car or other property
- Avoidance of debt collection harassment
- Prevention of utility service termination, which may occur due to non-payment of bills
- Return of driver license back if it has been suspended
Bankruptcy Laws about Transferring of Property:
Any transfer of property without receiving fair value for it within one year before filing bankruptcy is a fraudulent transfer. You cannot give any property away to friends or relatives before you file for bankruptcy and get it back after the filing of bankruptcy. You can, however sell a non-exempt property before filing bankruptcy, and use the money to purchase things, which are exempt.
Filing for Bankruptcy:
It is advisable that you consult a lawyer before filing bankruptcy to see if this will affect you. Here are a few things you need to know to apply for bankruptcy:
Bankruptcy Application Process
When you want to apply for bankruptcy, you have to go to one hearing at the courthouse, which is short and simple. All you have to do is to answer some questions by the trustee and sometimes have to answer to some financial concerns of the creditors. The filing process will then take up to four to six months to complete.
The Cost of Bankruptcy
There is generally a filing fee for bankruptcy, charged by the banks. This fee is about $200.00 for a Chapter 7 case, and about $185.00 for a Chapter 13 case. The fee is only payable if the case is filed.
Affects of Bankruptcy on Credit Ratings
The impacts of bankruptcy on the credit ratings are long-term. You will have to face the consequences of bankruptcy on your credit report for 10 years. Nevertheless, you can receive credit from a number of companies who will charge you higher interest rates.
Filing for Bankruptcy with an Attorney
It is better to consult an experienced attorney before you file for bankruptcy. Make an appointment with them and know the way they will deal with your case. Also, inquire about the charges of their services. You can also hire non-lawyers who prepare your documents for a fee, but it is not a good idea to use these services.
Filing for Bankruptcy without an Attorney
You can also file bankruptcy by yourself with the help of books and do-it-yourself kits. Chapter 7 bankruptcy is easier than Chapter 13. However, as these cases have legal problems, there are many things, which you may not know how to handle without an attorney.
Why Avoid Filing for Bankruptcy?
Bankruptcy may look like an attractive debt relief option, but is burdened with a number of penalties. Here are a few things, which may follow bankruptcy:
- Not all outstanding debts are cleared with the application of bankruptcy
- The credit scores are severely affected
- Through chapter-7 bankruptcy option, you can loose all your assets and be homeless.
- The repayment plan by chapter-13, can take up to five years to complete
- Tax refunds and earned income credits are not exempted when you file your bankruptcy case
If possible, you should avoid bankruptcy, even in hard hit financial crisis, and consider other debt relief alternatives available.