When confronting the decision to file for bankruptcy, it can feel as if the financial weight of the world is aligned against you. In some cases, upside-down obligations and high-interest debt are aligned against you. After pouring so much blood, sweat, and tears into financial endeavors, no one desires to declare bankruptcy. However, declaring bankruptcy can provide a second chance to press the reset button on your financial affairs.
What You Must Know Before Filing For Bankruptcy
Declaring bankruptcy has repercussions. The admission that you are no longer able to pay your bills has a lasting impact on your credit repute and can disqualify you from future borrowing opportunities. Future borrowing is likely the last item on your mind given your current debt burden, but it is worthwhile to give it a moment's thought. The single most detrimental thing you can do to your credit history is declare bankruptcy, which will remain on your credit reports for seven to ten years.
Before deciding to file for bankruptcy to eliminate your debts, you should investigate a variety of alternatives. For instance, you may be able to restructure your debt through consolidation loans, negotiation with your creditors, or regaining financial stability through retrenchment and/or asset restructuring. Due to the severity of the credit impact, you will want to ensure that you have exhausted every alternative to filing for bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common form of insolvency because it provides the quickest results and can be filed by individuals, corporations, married couples, and partnerships. A Chapter 7 bankruptcy is sometimes referred to as a straight bankruptcy, and its registration initiates a court-supervised liquidation of assets.
After filing for bankruptcy, you, as the debtor, turn over all of your assets to the court-appointed administrator for liquidation into cash in order to repay your creditors. After the liquidation of your assets, you will typically receive a discharge of your debts within four months. Following your debtors discharge, you are granted a clean financial slate to move forward without the burdensome financial obligations that were suffocating you prior to filing. It is essential to remember that federal or tax debts cannot be discharged through bankruptcy.
The Chapter 7 bankruptcy code also provides for a number of asset exemptions that are deemed 'exempt' under Federal and State exemption laws, indicating that you are permitted to keep these assets. Do not be confused; if you owe money on these assets, such as your primary automobile, primary residence, or other assets that your state considers exempt, you will still be required to make the payments if you accept the exemption.
The exempted assets differ from state to state; therefore, you should consult your local laws to determine what may be protected from your Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13, also known as the reorganization bankruptcy, is an alternative option for filing for bankruptcy. In this instance, the petitioner desires to repay their debts over a period of three to five years. This is the optimal solution for those declaring bankruptcy who wish to safeguard nonexempt assets while renegotiating the terms of obligations that cannot be met as agreed. Chapter 13 is typically chosen by individuals with a predictable income that will enable them the financial flexibility to pay off their debts over the next few years.
Am I Eligible For Bankruptcy?
There are a few requirements that must be met to apply for bankruptcy. First, if you previously filed for Chapter 7 bankruptcy within the last eight years, you are prohibited from refiling until that time period has passed. In the event that you filed for Chapter 7 bankruptcy within the past eight years but are in critical need of debt relief once more, you may file for the more stringent Chapter 13 bankruptcy.
The following debts cannot be discharged, so if they are the primary reason you are contemplating bankruptcy, you should reconsider:
debt for trust fund levies
Taxes associated with criminal restitution for returns that were never filed or were filed late (within two years of the petition date).
domestic assistance payments
taxes for which the debtor filed a false tax return or avoided paying;
Student loans
Drunk driving injuries
Civil restitutions or damages awarded for intentional or malevolent actions resulting in bodily harm or death
Rebuilding Credit Following Bankruptcy
You can reconstruct following a successful discharge of your debts through bankruptcy. In fact, the purpose of the federal law that allows you to declare bankruptcy is to give you a second opportunity financially after you have accumulated unmanageable debts. Filing for bankruptcy and receiving a successful discharge of your financial obligations enables you to obtain enduring debt relief within three to five months and put an end to the harassment of credit collection agencies permanently.
With time, your credit score will improve, bankers will begin to deal with you once more, and borrowing will not be permanently prohibited. Get your financial home in order and re-enter the market with the additional experience and financial savvy that bankruptcy can provide.""
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