Things to Know Before Filing For Bankruptcy
Bankruptcy is a legal procedure that allows individuals, businesses, and other organizations to discharge debts when they can no longer afford to pay them. The primary objective of bankruptcy is to provide those deep in debt with a fresh start, with the secondary function of paying off creditors as much as possible without severely burdening the debtor any further. Indeed, for many individuals and businesses, filing bankruptcy represents the most appropriate solution to a difficult financial predicament. However, if you are considering the possibility of filing bankruptcy, there are many things to know ahead of time.
For starters, you’re not alone. In fact, the most recent U.S. Courts data for the twelve months ending June 30, 2017 shows almost 800,000 bankruptcy filings, with over 772,000 of them representing individuals filing for bankruptcy. This implies an average of over 2,000 people filing for bankruptcy in the United States every day! These numbers, robust as they are, have actually been on the decline since 2013, when the total number of bankruptcy filings exceeded 1.1 million. Source
Chapter 7 and Chapter 13 - Two Primary Types of Consumer Bankruptcy
Chapter 7 Bankruptcy is typically filed by individual debtors with relatively low income levels. Chapter 7 bankruptcy involves paying off unsecured creditors through a liquidation of the debtor’s assets that are non-exempt by either state or federal law. Non-exempt assets include cash, funds held in bank accounts, funds held in the stock market, jewelry, collectibles, and any second homes or cars. These types of non-exempt assets are subject to liquidation under a Chapter 7 proceeding, with the funds raised utilized to pay off creditors. The number of Chapter 7 filings in the United States exceeded 489,000 for the twelve months ending June 30, 2017.
Chapter 13 Bankruptcy is typically filed by individual debtors who possess an income higher than the median level of the state in which they reside and is an option for people whose income may be too high to file for Chapter 7 bankruptcy. Chapter 13 bankruptcy involves designing a three- to five-year repayment plan that necessitates paying off some creditors in order to have other debts forgiven. When the repayment plan is completed, remaining debts can be discharged. The number of Chapter 13 filings in the United States was just shy of 300,000 for the twelve months ending June 30,2017.
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy, most often utilized by businesses, (though some individuals use it when their debts exceed the limits granted in Chapter 13), is considered a “reorganization” bankruptcy proceeding, as it provides businesses the opportunity to continue operating while restructuring their debts.
Businesses ranging in size and scope from large multinational corporations to relatively small partnerships utilize Chapter 11 to pay off debts over time without having to sell assets or cease operations. By the numbers, Chapter 11 Bankruptcy is far less common, as there were fewer than 7,000 Chapter 11 filings in the United States for the twelve months ending June 30,2017.
Do I Need an Attorney to File Bankruptcy?
Though consulting an attorney is not required, it is generally advisable. A clear understanding of which federal and state laws apply to your situation can lead to the best possible outcome as to which debts eventually get discharged.
Judges and employees of the court are not permitted to dispense legal advice, and there are important differences between filing bankruptcy under Chapter 7 and Chapter 13. There will be many forms to complete, and if you lack a full understanding of the rules and procedures associated with your particular case, the outcome may not go as well as it otherwise could with an experienced attorney by your side.
Attorney Fees, Court Costs, and Paper Trails
Bankruptcy attorney fees are a bit of a Catch-22 – and they must be paid upfront – in other words, they can’t be included as debts that you seek relief from in a bankruptcy filing. There are also court filing fees and administrative fees. Depending upon which state an individual resides, total costs associated with filing Chapter 7 Bankruptcy will likely exceed $2,000, while filing for Chapter 13 Bankruptcy will likely cost more than $3,000.
There are other “costs” as well, as you may be required to miss work to meet with attorneys or attend court proceedings. If you can’t afford an attorney, it can make sense to search for options for free (pro bono) bankruptcy legal services. Additionally, bankruptcy filings are a matter of public record, so your financial information will become vulnerable to anyone wishing to dig into your financial history. You should expect to lose a measure of privacy when filing for bankruptcy.
Get a Clear Financial Picture
Prior to filing for bankruptcy, make a comprehensive list of all debts, assets, income and expenses. This helps everyone involved in a bankruptcy filing to develop a clear understanding of the financial landscape. Additionally, within 180 days prior to any filing, bankruptcy courts require petitioners to undergo credit counseling from a Federally approved counseling agency. This typically takes fewer than two hours over the telephone or online, and is done to ensure that all possible alternatives to bankruptcy – such as debt management plans, debt consolidation, or debt settlement – have been sufficiently explored.
When filing bankruptcy, the individual provides specifics as to his average income over the previous six months. If this income is below the median income for his state, then he can file under Chapter 7 bankruptcy protection. However, If this income is above the median, then the filer must fill out a form detailing monthly income and expenses to determine whether he has the means to pay off some of the debt within three to five years. If the means test indicates that the debtor can do so, then he files under Chapter 13 bankruptcy protection.
Bankruptcy Won't Eliminate All Debts
It is important to know that obligations including but not limited to Federal student loans, taxes, alimony and child support, as well as debts that arise following the bankruptcy filing and any debts resulting from driving under the influence of alcohol are not eliminated through bankruptcy. Additionally, bankruptcy may not relieve any co-signers from financial responsibility on all or part of any loans that were agreed to be paid off in the event that the debtor could not.
There Are Consequences to Bankruptcy
Bankruptcy should not be entered into lightly without an understanding of the long-term consequences. Importantly, a Chapter 7 bankruptcy will remain on a credit report for ten years from the filing date, and a Chapter 13 bankruptcy will remain on a credit report for seven years from the filing date. Either stain will impede the process of obtaining new lines of credit following bankruptcy, while potential future employers and landlords can frown upon this aspect of a financial history. You will also likely need to acknowledge a bankruptcy filing on many medical and government forms.
Of course, bankruptcy will damage a credit profile, often lowering a FICO credit score toward the low 500s – though those considering bankruptcy are likely to already have weak credit scores. However, with careful planning and responsible financial behavior, particularly in the first two years following a bankruptcy discharge, it is possible to rebuild a FICO credit score to healthier levels. Nonetheless, before deciding whether to file bankruptcy and incur long-term damage to your credit profile, be certain to investigate other alternatives such as debt management plans, debt consolidation and debt settlement.
Are you in debt? we can help
Handling my business debt was not something I looked forward to
Handling my business debt was not something I looked forward to. But United Settlement was so patient with my questions and helped me figure out how to handle my debt as a small business owner. I qualified...
I didn't even know what type of interest rates there were and how those affected my debt overall
When I contacted United Settlement, I didn't even know what type of interest rates there were and how those affected my debt overall. So, when I went to go buy a new house, I was shocked to find out that...
Debt settlement is what we signed up for when we were interested in using United Settlement
Debt settlement is what we signed up for when we were interested in using United Settlement. We needed a company to negotiate on our behalf to help us reduce the total amount of debt we owed, and we were...
I had no idea that I could lower my credit card interest rates. But when I contacted United Settlement, they explained to me that I could negotiate my interest rates down lower along with my payoff balance....
If you have ever had an unmanageable amount of credit card debt
If you have ever had an unmanageable amount of credit card debt, you know how ridiculous it is to try to pay it off. In my situation, I did not want to wait until the last moment to get this debt under...
Medical debt is damaging to your long-term credit
Medical debt is damaging to your long-term credit. That is what we were dedicated to managing our debt as soon as we got our medical bills from an unexpected surgery that our insurance did not cover. I...
Finding a good alternative to business debt relief is far from easy
Finding a good alternative to business debt relief is far from easy. As a company, we have spent years trying to find a good solution to our business’ debt, because if we can get it out of the way we...
I had no clue that a debt consulting company could provide guidance
I had no clue that a debt consulting company could provide guidance and what type of loans you should take out. I was thrilled by the communication I had with United Settlement. They did not hesitate to...
Buying a new vehicle should not stress you out to the point that you cry every night to go to sleep
Buying a new vehicle should not stress you out to the point that you cry every night to go to sleep. But that was the point I was at before I contacted United Settlement. These guys were professionals at...
I knew I needed to file bankruptcy before I even contacted the team at United Settlement
I knew I needed to file bankruptcy before I even contacted the team at United Settlement. My biggest issue was how to file and also what type of bankruptcy I should file. A lot of people do not know that...
Who would have thought that auto loan debt can take such a toll on a family
Who would have thought that auto loan debt can take such a toll on a family? Well, we discovered how that could happen when our family bought two new vehicles. We thought we could afford the payments, but...
Why go bankrupt when you do not have to?
Why go bankrupt when you do not have to? That was my thinking when I decided to hire United Settlement. I wanted them to help me get out from underneath my credit card and auto loan debt. They were very...
Who knew that you could get credit card debt relief
Who knew that you could get credit card debt relief just by reaching out to a credit card consolidation company? I did not. But I had a friend recommend United Settlement to help me get through my debt...
We had a revolving credit card debt that just wouldn’t quit
We had a revolving credit card debt that just wouldn’t quit. This in turn made it difficult to try to buy a house. Our credit card debt literally held us back from moving forward in life. But our goal...
There comes a time when you realize you need help with your debt consolidation
There comes a time when you realize you need help with your debt consolidation. And that time came for me last year. I contacted United Settlement to help me manage my debt issues. They were friendly and...
Small business loan debt was crippling our company.
Small business loan debt was crippling our company. We have spent many years building our business, but we had to take out several loans to get through a slow period. Fortunately, those loans helped, but...
If you have ever run a business before, you know how quickly you can get into debt
If you have ever run a business before, you know how quickly you can get into debt. That’s right, you can be trying to live your best life and end up in a situation you cannot get yourself out of. That...
Our credit card interest rates were astronomical
Our credit card debt was not really that bad, but our credit card interest rates were astronomical, which meant we could not get out from under our debt as quickly as we would have liked. We used United...
I had no idea that I would qualify for business debt consolidation loans
I had no idea that I would qualify for business debt consolidation loans. But United Settlement walked me through what that process was like and gave me insight into how to manage my future debt so that...
The last thing I wanted to do is file for business bankruptcy
The last thing I wanted to do is file for business bankruptcy, but that was before I knew how common it was and how little it actually affected my personal credit. United Settlement informed me of that...