What Happens When You File Bankruptcy
Filing for bankruptcy is possibly the by far most serious thing in anyone’s finances. People file for bankruptcy when there is no direction that they can meet their debt responsibilities.
Thinking that someone not being able to pay their credit card debts can mean filing bankruptcy. Even though this isn’t entirely wrong, it isn’t correct either. There are many ways that one can get out of credit card debt. Oftentimes, filing for bankruptcy isn’t one of the pleasing options. If you have a significant credit card debt, there are still ways that you can pay up. There are multiple payment plans that you can set up. This is going to hurt your credit score less compared to filing for bankruptcy.
Understanding What Bankruptcy Is
A lot of people think of bankruptcy as a way to wipe out debt obligations. This is farther from the truth itself. Even if you file for bankruptcy you will have to pay what you owe. How you’re going to pay the amount you owe depends on the bankruptcy you file. That’s right. There isn’t a single bankruptcy. There are a whole lot of kinds of bankruptcies but the most common ones are as follows; chapter 13, chapter 11, and chapter 7.
Chapter 13
When filing a chapter 13 bankruptcy, you are offered a plan that allows you to pay your debt within the next three to five years. While doing so, you get to keep your assets. So your car, property, etc. remain untouched. However, to file a chapter 13 bankruptcy, your debt cannot be more than $1,184,200. If you have unsecured debt, it can also not exceed $394,725.
Chapter 11
With a chapter 11 bankruptcy, everything is pretty much the same as above. But chapter 11 bankruptcy is more appealing to businesses. Since your assets are not going to be taken away from you, the business operations can continue. Again, same as chapter 13, you will get about three to five years to pay off your debt. This is by far the only option for many business owners when filing for bankruptcy.
Chapter 7
Chapter 7 bankruptcy is unlike chapter 13 and 11. Depending on your state, some of your assets may be exempt but generally, you will have to liquidate certain assets like your car or a second home. Things can get quite complicated with a chapter 7 bankruptcy. We recommend hiring a lawyer to take care of the technicalities. The biggest need for you to file a chapter 7 income is to have no disposable income. Once that is all set and placed, you can file a chapter 7 bankruptcy. As mentioned above though, it is going to be in your best interest to at least talk to a lawyer before filing for chapter 7 bankruptcy.
After Filing for Bankruptcy
After you file for bankruptcy, the creditors will not look for what you owe to them, at least for a temporary amount of time. This means the creditors won’t be able to take away money from your pay or bank account(s). Filing bankruptcy will basically set you up in a payment plan to pay what you owe easily.
Keep in mind that even though you are not able to meet your debt obligations, filing for bankruptcy has a cost. Generally, the total cost of it with the hire of a lawyer, including the attorney fees is going to be around $4,000. Of the $4,000, roughly $3,000 is going to be the attorney fees and about half a thousand dollars for the filing fees.
