Bankruptcy is an unfortunate event that hundreds of thousands of individuals and businesses go through every year. There can be various reasons for bankruptcy, such as financial mismanagement, sudden, unforeseen medical expenses, the poor economic condition of the individual’s country, or loss of a job.
This article will go into depth on the topic of bankruptcy, its eligibility criteria, its long-term and short-term effects, types of bankruptcies, the selection of the correct type of bankruptcy, and finally, the process of filing for bankruptcy. Moreover, AttorneyDebtFighters can assist you in making the process smoother. We provide some helpful bankruptcy tips and advice..
What is Bankruptcy?
Bankruptcy can be defined as the state of being “bankrupt.” It means that a person is unable to fulfill their financial obligations. These obligations can come in the form of rent, mortgages, child support, insurance, debts, and much more.
Bankruptcy is generally considered to be the breaking point for a person who’s unable to pay their dues to the lender. Filing for bankruptcy is the last resort that someone should take when going through a difficult financial situation. That’s because there are consequences of declaring bankruptcy that we will discuss in detail later on. In many ways, declaring bankruptcy is like pressing the reset button on your financial life.
Eligibility Criteria for Bankruptcy
Certain rules define a bankrupt person or a bankrupt business. These rules help differentiate between someone who is in a difficult financial situation and one who is officially bankrupt.
The rules and regulations are provided and enforced by the United States bankruptcy courts. These are special courts that only oversee cases related to bankruptcy. Eligibility criteria for filing for bankruptcy can vary depending upon the type of bankruptcy you’re filing for. Usually, an individual must fulfill the following conditions to be considered eligible to file for bankruptcy:
- The individual must have a domicile in the state where they’re filing for bankruptcy.
- The individual must be unable to pay their debt.
- The individual must not have committed bankruptcy fraud in the past. This includes hiding information and assets.
These are the official requirements from the Court of Bankruptcy (U.S.). We recommend you file for bankruptcy if,
- Your annual income is lower than the average in your state.
- Most of your income is spent on necessities like electricity, gas, food, water, etc.
- Even going to extreme measures like skipping meals or disregarding your healthcare.
- Debt is taking a toll on your mental health and your relationship with your family and friends.
Effects of Filing for Bankruptcy
One must consider the ups and downs of bankruptcy before filing for it. There are both benefits and disadvantages to filing for bankruptcy.
Contrary to popular belief, bankruptcy can have some advantages if done right. With proper planning and legal guidance, you’ll be able to make a fresh restart in your financial life. Filing for bankruptcy alleviates the pressure of handling creditors and loan sharks. It also removes debt and, in some cases, improves your credit score by clearing negative items.
While one may feel an immediate sense of relief after filing for bankruptcy, it can have negative long-term effects on your professional and financial life. These can include:
- Filing for bankruptcy will severely impact your credit score, but you can build it back with proper planning and guidance.
- Obtaining credit becomes extremely difficult once you file for bankruptcy. This will make it difficult to qualify for a loan.
- You will not receive any tax returns. All of it will be submitted to your bankruptcy manager to repay your debts.
- Depending on the type of bankruptcy you file for, most of your assets, including your house, car, and other property you own, might get liquidated to repay your debt.
- Matters of bankruptcy are easily accessible to the public; this information can impact your social as well as professional life. Therefore, it can have an impact on the reputation you have with your clients or employer.
Types of Bankruptcy
There are mainly two types of bankruptcies, Chapter 7 and Chapter 13 bankruptcy. Both have separate filing processes. Make sure to consider your current position before deciding on the type of bankruptcy you’re filing for.
Chapter 7 bankruptcy, also known as the “liquidation bankruptcy,” involves the dissolution of non-exempt assets like houses, jewelry, luxury items, insurance, etc., to repay the debt to the creditors.
Most of your debt will be forgiven, but some will remain, such as child support, student loans, alimony, and taxes. A consequence of filing for this type of bankruptcy is that your property will be seized, and it will remain on your record for the next 10 years.
This type of bankruptcy is less harsh than Chapter 7. However, you will be held responsible for repaying your debt in the near future in exchange for keeping all your property. Under this section, your attorney will put you on a repayment plan for the next few years, and you will be able to keep your property.
Once you pay all or part of the debt within the deadline, your bankruptcy will be discharged. Chapter 13 is a friendlier option as it allows you to retain your assets and stays on your report for 7 years.
It’s best to consult legal professionals to choose what type of bankruptcy you should apply for. Experts who thoroughly understand bankruptcy law, like the team at Attorney Debt Fighters, can give you the guidance you need. With a skilled bankruptcy lawyer by your side, you can navigate the law with ease.
How to Declare Bankruptcy?
The following is a step-by-step guide on how to file for bankruptcy. It’s best that you consider hiring a bankruptcy attorney to help you through this procedure.
- Determine your eligibility for bankruptcy by considering your financial situation and goals.
- You must have completed your credit counseling at least 180 days earlier.
- Choose the type of bankruptcy you want to file for. Opting for Chapter 7 will liquidate your property, while Chapter 13 allows you to start a repayment plan for the next few years.
- Get your bankruptcy forms from the bankruptcy court and fill them out with the required information, such as disclosure of all your assets.
- File for a bankruptcy petition and pay the necessary fee.
- A few weeks later, you will be called for a meeting with your creditors and bankruptcy trustee, where everything will be discussed, from the management of finances to the liquidation of assets.
Once this process is complete, you will be discharged from debt, which means you will not be obligated anymore to pay them.
All in all, bankruptcy is a tedious process involving numerous factors to consider before you file for it. Make sure to gather as much information about this process as possible and familiarize yourself with the terms, rules, and regulations before making such a decision. Consider hiring an attorney or an agency to help you in this regard so you don’t make any financial blunders and the best possible outcome for yourself and your loved ones.
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