How to File for Bankruptcy in the U.S.

Bankruptcy laws allow people to be released from their debt liability and start over with a clean slate. Before you decide to file for bankruptcy, you should understand the procedure for filing.

Deciding to File for Bankruptcy

You should only do this as a last resort. Before you file for bankruptcy, you should try other options for paying off your debts. If possible, you should get in touch with your creditors and negotiate a debt settlement plan with lower repayments. On the other hand, you could sell your assets and settle your debts.

Some types of debts cannot be erased even after you file for bankruptcy. If the majority of your debt is like this, then bankruptcy is not the right choice for you. The following debts cannot be erased:

–          Debts that arise after you file for bankruptcy

–          Alimony

–          Some student loans

–          Child support

–          Some taxes

–          Secured loans because the lender can foreclose on their capital

You should also find out the assets that are exempt from seizure during bankruptcy proceedings. Your state’s laws as well, as the type of bankruptcy you are filing for determine the exempt assets. For instance, if there is an automobile exemption of $5,000, you will be allowed to keep a $4,500 car, but not a $10,000 dollar one.

In the event that you cannot repay your debt, it is your cosigner’s duty to pay it back. Therefore, if your parents cosigned your auto loan because you had no credit, they will be legally obligated to repay it even if you file for bankruptcy.

Different Kinds of Bankruptcy

Chapter 13 – this is the wage earner bankruptcy filed by those with a reliable source of income. You can choose a repayment plan that pays off your debts slowly for 3-5 years. The amount that your creditors will get is determined by your income after bankruptcy, not the amount of debt you owe.

Chapter 12 – this is quite similar to chapter 13 and is for businesses whereby 80 percent or more of debt is from operating a fishery or family farm.

Chapter 7 – businesses and individuals can file for chapter 7 bankruptcy and their property is liquidated to pay off their creditors. Your secured loans might be eliminated or you can allow your property to be repossessed. Moreover, you can repay your creditors a lump sum that is equal to your property’s value.

Understand the Consequences of Bankruptcy

You should realize the impact that your loans will have on cosigners and know the types of debts that can be erased. Can you live with the negative impact of adding bankruptcy to your credit? You should also evaluate whether you qualify for bankruptcy.

–          The impact of bankruptcy on your credit is determined by how good your credit is right now. If you have a high credit score, it might take a huge hit. However, if your credit was bad from the beginning, filing for bankruptcy will not lower it by much.

–          The more accounts you associate when filing for bankruptcy, the bigger the impact it will have on your credit score

–          When you file for chapter 11 or chapter 7 bankruptcy, it will be on your report for up to ten years. However, chapter 13 will stay for up to seven years.

Filing for Bankruptcy

According to The Doan Law Firm owner, hiring a lawyer is not necessary, but it is recommended. This process is very complicated and most people cannot succeed without the help of a lawyer. If you cannot afford to pay an attorney, you should look for free legal services.

 

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