Bankruptcy

Bankruptcy is a financial and legal process for people or businesses that have accrued very high levels of debt that usually cannot be paid off. To declare bankruptcy and have it approved by a judge allows the individual to have their debts legally discharged.

Declaring bankruptcy can help people free themselves from debt. However, it also comes with some important consequences that must be considered before undergoing this process.

This article looks closely at how bankruptcy works and its main outcomes. Read on to find out how to declare bankruptcy and its many different forms.

Declaring Bankruptcy

If an individual or a business finds themselves in a situation where they have significantly more debts than finances to cover them they have the option of declaring themselves bankrupt.

Of course, this is a serious undertaking with many important considerations that should be made before starting the process.

When to Declare Bankruptcy

Before declaring bankruptcy it’s essential to review your financial situation fully first. If you have excessive debts that will take more than 5 years to repay, then you should consider bankruptcy as an option.

This might not be your only choice, however. You may also contemplate other solutions such as debt management or settlement. Yet, if you have exhausted all possibilities and your financial situation is particularly serious, bankruptcy may provide the necessary resolution to your economic issues.

You should seriously consider bankruptcy if:

• Paying off your debts has become impossible
• Your debt is continuing to rise despite your best efforts to cover it
• You are facing legal action for your lack of payment
• Non-payment is putting your dependents (i.e. children, elderly relatives) at risk

Qualifiying for Bankruptcy

Bankruptcy is decided in court by a federal judge. In order to qualify, you must meet certain criteria. These include:

• Being fully unable to pay off your debts
• Going through credit counseling to try and pay off your debts in another way
• Meeting the requirements of specific income-based means tests
• Not having already been declared bankrupt within the last 2-10 years (depending on the type of bankruptcy)

If your petition is accepted, you may begin proceedings. When these are successful you will be discharged from your debts. At this point your creditors will not be able to legally hold you responsible for the money owed, nor will they be allowed to undertake any attempts to collect the debt.

The Costs of Declaring Bankruptcy

Declaring bankruptcy is not free from costs. Whilst this process can go a long way towards securing your financial future, there are a number of fees that you will have to keep in mind before starting.

The main bankruptcy costs including filing fees and the costs of hiring an attorney. You can choose in some cases to work without the help of a lawyer, although using one is recommended.

Filing costs however, must be paid no matter the circumstances. These will vary depending on the type of bankruptcy that is being declared. We will look at these varieties in more detail further along in the article.

How to Declare Bankruptcy

Once you have formally decided to declare yourself or your business bankrupt, there are a number of essential steps you must take. The process can be long, taking around 6 months to complete usually. The key steps to declaring bankruptcy include the following:

1. Compiling all your financial documents.
2. Receiving credit counseling (this must be done over 180 days before filing for bankruptcy).
3. Filing a petition for bankruptcy with a court.
4. If accepted, you will be appointed a court trustee.
5. The court trustee will then set up a meeting with your creditors to inform them of your bankruptcy status and the next steps. It is obligatory for the bankrupt individual to attend this meeting.

What Are the Main Types of Bankruptcy in the U.S.

There is more than one type of bankruptcy open to residents and business owners in the U.S. Each offers different levels of protection for the debtor and has different requirements.

The type of debt you have accrued will usually be the deciding factor for what kind of bankruptcy you may have available to you. The main forms of bankruptcy in the USA include:

• Chapter 7 bankruptcy: Debtors with few to no assets will normally apply for Chapter 7 bankruptcy. This will allow them to discharge unsecured debt such as credit cards or medical bills. However, those declaring Chapter 7 with valuable assets will be forced to liquidate this property to cover their unpaid finances.
• Chapter 9 bankruptcy: This is available to financially challenged municipalities such as towns, villages, and cities. This permits them to restructure and develop a plan for their debt payment without liquidating their assets or real estate.
• Chapter 11 bankruptcy: This is made available to businesses so that they can restructure, resolve their debts, and remain functional. In rare cases, individuals can also apply for Chapter 11 too.
• Chapter 12 bankruptcy: This is available to family-run farming businesses. Farms, fisheries, livestock enterprises may all apply for Chapter 12 to maintain their operations and to plan their future debt payments.
• Chapter 13 bankruptcy: Individuals who make more money than is allowed to be accepted for Chapter 7 bankruptcy, will need to file for Chapter 13 instead. This is often known as “wage earner” bankruptcy and allows people and businesses to create a debt repayment plan. This will enable the debtor to pay the money in installments over a period of 3-5 years and without having to liquidate property.
• Chapter 15 bankruptcy: This kind of bankruptcy deals with cross border cases where the debtor has filed for bankruptcy in their home country.

What Are the Consequences of Bankruptcy

Bankruptcy in the short term can provide relief to someone swamped with debt. However, there are a number of long term consequences that can affect your financial situation in the future.

Some of the main consequences of being declared bankrupt include:

• Bankruptcy will remain on your credit report for 7-10 years
• You will not be able to file for bankruptcy again for a set period of time
• The personal and financial information submitted during bankruptcy proceedings will be fully accessible to the public
• Depending on the type of bankruptcy, you may be obliged to sell off some of your personal assets

Do I Need a Lawyer to Declare Bankruptcy?

You can represent yourself without legal counsel if you are filing for chapter 7 or chapter 13 bankruptcy, although this can come with serious risks. Yet, in all other situations it is necessary to have a bankruptcy attorney.

It is overall recommended to contract legal services to assist you through the process and to help you remain aware of any state or federal laws that could affect your case.