Claiming bankruptcy can be both a blessing and a curse. This forces people to start over financially, meaning that they would have to start saving again, acquiring assets and working to be financially secure. At the same time however, it gives them the chance to unburden themselves of all the financial liabilities that followed them throughout their life.
1. Know the Extent of Bankruptcy
Filing for bankruptcy has some heavy consequences that individuals should be aware of. Once a person goes through with the process, their non-exempt assets will be liquidated to pay off outstanding debts. Note that bankruptcy doesn’t eliminate all obligations. Some payments such as child support and alimony still needs continuous funding.
2. Type of Bankruptcy to File
After understanding the gravity of declaring bankruptcy, the next step is to figure out exactly what type of bankruptcy to file for. There are basically two types: Chapter 7 and Chapter 13. Chapter 7 is known as the “fresh start” type wherein selected property is liquidated to pay off the debt. This cancels out the debt even though the liquidated amount is not enough for the full obligation.
Chapter 13 on the other hand is called “reorganization” bankruptcy
wherein individuals would not lose all their property. Instead, they will be subjected to monthly payments that need to be followed strictly. Individuals who choose this type usually get five years for arrears payment on their debts.
3. Hire a Lawyer
Claiming bankruptcy is stressful for anyone – which is why it’s important to get the help of a professional. Although some people may consider this to be an added expense, the fact is that lawyers actually make the transition faster and easier. The lawyer should also be able to offer details regarding the type of bankruptcy you are getting and what this means for your secured and non-secured property.
4. Get the Necessary Documents for Filing
The lawyer should provide the corresponding documents that need to be filed, depending on the bankruptcy Chapter. Don’t be afraid to ask questions at this point, especially if the documents sound vague. The lawyer is the one responsible for sending the petition once all papers are filled out.
5. File and Wait for a Response
Once the papers have been submitted by the lawyer to the proper office, individuals simply need to wait for summons from the court. This is called a “341” meeting involving the creditors to ascertain the truthfulness of the reports.
6. Be Prepared for Questions
Filing for bankruptcy is never a good thing for creditors because it means they are getting less than they are owed. This is why individuals are advised to be prepared for questions or challenges to the decision. This will likely occur 60 days after meeting with the creditors. Should this not occur within the next two months, you will get a notification for the discharge of debt or the start of a repayment plan, depending on the bankruptcy type.
7. Start Rebuilding Credit
Although this is not officially a step for filing bankruptcy, individuals need to keep this in mind even before declaring Chapter 7 or 13. Note that bankruptcy results to a very low credit score, which means that individuals wouldn’t get a decent loan if they applied for one. More often than not, seeking the services of credit counselor is the next step after bankruptcy. This allows individuals to address their problem in a more rational manner.
Claiming bankruptcy should be a person’s last resort when facing financial problems, considering how drastic the effects are to their credibility. Individuals who have money problems are advised to seek other methods first such as a repayment plan, refinance, debt consolidation and others. When it comes to money matters like bankruptcy, bankruptcy education is your best ally.