What you need to know about bankruptcy…
What you’ll learn in this post:
- Why bankruptcy is an inevitable part of modern American life
- Why you shouldn’t be embarrassed
- How to protect your home, your family, and possibly even your car
- Why credit companies don’t expect to be paid back everything
- Your bankruptcy choices as a consumer. The basic differences between Chapter 7 & Chapter 13
- Why you don’t need to hire an attorney (but the reasons you probably should)
- The steps to filing bankruptcy yourself
- Some bankruptcy disadvantages…
- & some benefits
- A quick introduction to actual bankruptcy law
- Next steps…
Welcome to The Ultimate Guide To Filing For Bankruptcy. In this guide we’ll try to give you all the information you need to be fully informed and understand whether this is the route you’re best going down.
We understand that this is a very worrying time for you and will do our best to use jargon-free plain English and not burden you with more unnecessary pain.
Why you shouldn’t worry…
If there is one thing we can reassure you of, it’s that you’re not alone. With mounting credit card debt, mortgages, car loans and medical bills, bankruptcy is becoming more and more vital to help get Americans out of bad financial situations.
Economic downtowns, medical expenses, business failures, company relocations, job losses and increasing divorce rates means that more and more consumers in the United States are turning to bankruptcy to solve their problems.
All of this means that most of us are drowning in debt and living from paycheque to paycheque, with zero savings and little assets. Of course, all it takes to get us into trouble is an all too common recession, or the loss of family income to take us from just getting by to just getting into serious trouble.
These days, even having a job that would have been stable in the past is no guarantee of stability in the future. All it takes is a slight downturn in the economy to start factory relocations and redundancies.
Are you embarrassed about bankruptcy? Don’t be…
This leads us onto another common sticking point; the embarrassment people feel around filing for bankruptcy. Our whole economy is based around consumer spending and debt. From the moment we become old enough to have money in our pocket we are taught that spending is good and the sales forces of every industry are incredibly effective at making us spend more that we earn. These sometimes manipulative sales tactics persuade us to spend money we don’t have, selling us credit and fleecing us with the interest. This bad situation gets worse the deeper into debt we get.
Even if we can manage the repayments, just one serious illness or job redundancy can put us over the edge. Couple that with poor financial planning (which we’re not taught in school) and you have the perfect recipe for financial disaster.
Credit default is a cost of doing business
Credit companies don’t expect to be repayed all the revenue that they should be due and factor this into their business plans. Credit cards for example, are among the most profitable sources of revenue for credit companies and they expect a significant portion of the debt from these never to be repayed. Credit default is factored in as a cost of doing business.
So if you’re ever feeling guilty about the possibility of looming bankruptcy, please remember that it is a business decision you will make and you should try not to allow negative emotions to creep in. Bankruptcy can often be the difference in losing your family, your home and even your life. Death brought on by money worries is a large contributor to suicide rates in the US.
The relief of bankruptcy can help to address all of these concerns and in fact that’s exactly why bankruptcy was introduced into law. Bankruptcy can help you get a new start by expunging your debt.
Filing bankruptcy, step-by-step
You don’t need to be a lawyer file your own bankruptcy but there are several recommended steps you should take before. You should always understand your options so that you can protect your property and not get lost in the maze of documents you will need to file.
Employing a lawyer however, will make the whole process much easier and less likely to result in an expensive mistake.
Here are the steps you need to follow to make filing your bankruptcy as pain-free as possible. Using a reputable lawyer like Bright Associates means these steps will be taken quickly, efficiently and accurately and ensure your bankruptcy is discharged as quickly as possible.
- Get a free initial counselling meeting to discuss your credit position and financial needs.
- Fill out a very extensive bankruptcy form & documents pack.
- Attend your trustee meeting at your local court.
- Attend a budget management course which takes about two hours.
- Wait around 60 days for your bankruptcy to be discharged.
Although this sounds simple, it can go south pretty quickly if you don’t have an experienced person to guide you through the process. This guide should help you navigate your way through your filing and give you more information to hand should you wish to employ a lawyer.
There are two main consumer bankruptcy filing choices which we will cover in the early part of the guide. These are Chapter 7 and Chapter 13. With Chapter 7 bankruptcy your debts are completely wiped out, without you having to pay anything in most cases. Chapter 13 involves a repayment plan for you to pay off all or part of your debts. Each has different exclusions and eligibilities which we’ll also cover in great depth. If you are convinced that bankruptcy is the avenue you wish to take, you will find detailed step-by-step instructions to help you along here. We also have a full guide on bankruptcy alternatives and you can discuss these with our lawyers.
You will discover how to protect your property, what debts bankruptcy will be able to discharge, all about secured debt and bankruptcy, how bankruptcy will affect mortgage repayments and how to build your credit back up afterwards. Everything to get you back on your feet as soon as possible.
The disadvantages of filing for Bankruptcy
The benefits of bankruptcy are obvious. Bankruptcy can temporarily get you out of the credit trap, give you some space to build a new life for yourself and your family and learn how to become more financially responsible.
However, there are certain disadvantages to filing bankruptcy which will speak about now.
These disadvantages can come in many forms, emotional stress, economic hardship and a temporary poor credit rating.
One of the most worrying aspects of declaring bankruptcy for most people is the stigma that it brings in society. Having the label of bankrupt is difficult for people to talk about and deal with. In fact, many people will keep accumulating debt for years and years rather than cope with the stigma of being bankrupt.
You should also know that your immediate and short-term future credit rating will suffer from declaring bankruptcy. If you look to buy a home, or even rent within the first few years you may find it difficult, or at least you may find the interest rates you are offered tough to bear. This can also affect even leasing a car or looking for finance to start a small business. In fact, your bankruptcy status will remain on your credit report for 10 years.
As part of the bankruptcy filing process, you will need to disclose your current financial position and all your financial activities for the previous two years, as well as your current income, debts, and any property you hold.
How the bankruptcy law works
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was introduced into law in October 2005 by Congress. Thus it was a change to the current bankruptcy law and was designed to cut down on Chapter 7 bankruptcies.
Chapter 7 bankruptcies don’t require you to repay any debt and it was felt by the credit card and banking institutions that the current bankruptcy legislation was being abused. They felt that a good many people filing bankruptcy at the time could afford to pay back the debt in full, or at least in part. Therefore, they lobbied Congress for this change in law and were successful.
The major change that BAPCPA brought was an introduction of the means test. This was a questionnaire that filers had to complete so the courts could find out what their current income was to decide whether Chapter 7 or Chapter 13 bankruptcy was most suitable. Higher earners are required to submit a Chapter 13 bankruptcy which requires them to pay back at least some of what they owe. In reality this made little difference to the number of people filing for Chapter 7 bankruptcy.
Even today changes in the bankruptcy law are frequent. These can be difficult to navigate without an experienced lawyer. This website to keep you updated on all the major and most of the minor changes, but we still advise consulting one of our experienced attorneys before proceeding.
That’s us finished with the introduction to bankruptcy law. We will now move on to describing each of the Chapter 7 and Chapter 13 bankruptcies in more depth. What they really mean to you, and which one you should choose moving forward.
If you feel concerned that you need immediate help or any clarification, please call us immediately for free, no obligation chat about your financial requirements.
Okay, let’s move on to describing the Chapter 7 filing in more detail.
Give us a call on (800) 922-6500 any time for a free chat about your next steps, or contact us with the form below…