U.S. bankruptcy laws provide businesses and people who have experienced disastrous financial disintegration with the ability to start over with a fresh start. Filing for bankruptcy gives them relief from the pressure of creditors and debt collectors so they can take the time to reorganize their finances.
As enticing as a fresh financial start may sound, bankruptcy still comes with consequences and downsides. First of all, bankruptcy will significantly impact your credit reports, so it is crucial to consider the pros and cons before signing the bankruptcy petition. This article will help you consider when you should file for bankruptcy and why you should do it.
Why Should I File Bankruptcy?
The main reason people and businesses file bankruptcy is to obtain relief from their debts. While this may be obvious, a more fundamental reason people file bankruptcy - and often a more compelling reason - is to get debt collectors to back off.
Bankruptcy triggers a legal provision called the automatic stay. This provision stops creditors from attempting to collect debts from you. Hence, freeing you from the pressures that those unpaid debts can lay on you. If you are facing eviction or your utility companies are threatening to disconnect your services, personal bankruptcy may be able to put a stop to those actions, too.
What Should I Know About Filing Personal Bankruptcy?
The most common types of bankruptcy for individuals and couples are Chapter 7 and Chapter 13 bankruptcy. If you are considering filing bankruptcy, you should know the difference between the two chapters in order to determine which one would be best for your financial circumstances.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, all of your property that is nonexempt will be liquidated by the bankruptcy trustee. The trustee will then divide the funds from the liquidation and pay your creditors off in preferential order. Any other unsecured debts that are leftover will be discharged in your bankruptcy. You have to qualify for Chapter 7 bankruptcy, therefore it is a great option for low- to medium-income individuals and couples.
People with very few - or, in a lot of cases, no assets at all - often file for Chapter 7. In these cases, their creditors will only get a very small payment or no payment at all. Hence, Chapter 7 bankruptcy is a good option if you do not own many assets and your income is less than the median in your state.
Chapter 13 Bankruptcy
Chapter 13 is often referred to as a “reorganization bankruptcy.” Be prepared to pay a percentage - if not all - of your debts off if you file Chapter 13 bankruptcy. This type of bankruptcy is for individuals and couples who have large enough incomes to repay their debts in a structured payment plan. Chapter 13 bankruptcy tallies up your debts and divides the total into affordable monthly payments, hence reorganization.
If you own property that you would prefer to keep, Chapter 13 is the better choice for you. You will be required to pay the entire loan amounts that you owe your creditors, but you will be allowed to maintain ownership of your property. Chapter 13 essentially provides you with more time to repay your debts without losing your assets.
Bankruptcies are reporting in the public records and you will also notice them on your credit reports for several years after your discharge. Chapter 7 will show up for up to ten years, while Chapter 13 will be reported on your credit reports for up to seven years. This can impede your ability to obtain loans because lenders are often tougher on people who have filed bankruptcy.
When Should I File Bankruptcy?
The truth of the matter is - there is not a perfect time to file bankruptcy. You are the only person who can decide when you should file bankruptcy. You can consult with a financial professional for advice, but the final decision is up to you. Filing for bankruptcy can be advantageous for you if:
Creditors refuse to negotiate with you, no matter how hard you try.
You own very little property or have little equity vs a high amount of debts and your debt is much higher than your income.
You are forced to pay debts with your credit cards, which is putting you further into debt.
If you started paying your debts a portion of your income on a monthly basis, it would take longer than five years to pay off your debt.
Should I Hire an Attorney?
You can certainly file a bankruptcy pro se, but bankruptcy cases can be tedious and drag on for months. Some even last years. Filing bankruptcy is demanding and laborious and it requires specific knowledge of bankruptcy code in many cases. So, while you can rightfully represent yourself in your bankruptcy case, we highly recommend that you consult with an experienced bankruptcy attorney who can expertly maneuver your case through the web of bankruptcy laws. The right attorney will make the process nearly stress-free for you.
Are You Considering Filing For Bankruptcy?
If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.