Top Things to Know About Declaring Bankruptcy
If you are deeply in debt and considering filing for bankruptcy, you are probably brimming with anxiety. Not only must you fend off calls from collectors, but you're probably wondering about the filing process.
Filing for bankruptcy can be complex and confusing. Every case is different, so it may be difficult to find someone to talk to about how you will fare after the bankruptcy case is over. However, by understanding the following seven aspects of declaring bankruptcy, you will be more prepared to take the next step to a life free from debt.
Bankruptcy Is Not an 'In and Out' Process
If you are inexperienced with bankruptcy courts, you might think that bankruptcy operates similar to small claims court, which concludes in one day. Chapter 7 bankruptcy, the most common bankruptcy chapter for individuals, usually lasts four to six months.
The processes for the second and third most frequently filed bankruptcy chapters, 13 and 11, can last much longer. A Chapter 13 bankruptcy plan will last between three and five years.
Similarly, a Chapter 11 case may endure for two years or longer. You must be prepared to stick it out if you want to obtain the fresh start promised by bankruptcy laws and documentation.
Bankruptcy Opens Your Finances to Public Scrutiny
If you are uncomfortable with discussing your salary with your friends and family, prepare yourself to have your financial life exposed to the public.
If you file for bankruptcy protection, you will be required to file an extensive package of paperwork called the bankruptcy schedules. The schedules will list your debts, assets, income, expenses, and recent financial transactions.
You will also be required to attend a meeting of creditors. During the meeting, the bankruptcy trustee will ask you probing questions in a public room. Any of your creditors can question you at the meeting.
Although bankruptcy trustees usually strive to keep the proceedings as dignified as possible, the meeting is a public proceeding and will be held in private only under extreme circumstances. This can be a very uncomfortable and embarrassing process for many individuals.
Honesty and Complete Disclosure Are Required
Total and complete honesty is important when filing for bankruptcy. Bankruptcy courts have taken the position that only honest debtors are entitled to a discharge of debt.
This means that you must list all of your property, debts, and creditors. If a lack of honesty is discovered, the case for bankruptcy discharge may be lost, and an investigation by the FBI initiated. Dishonesty in bankruptcy is a serious federal crime.
Bankruptcy Forms Are Complicated
Many people perceive bankruptcy as simple and straightforward, as it is mostly based on forms. Unfortunately, bankruptcy forms are more similar to tax returns than "check the box" forms.
The forms contain complex questions about your financial affairs. It is necessary to give yourself sufficient time to fully understand and complete the bankruptcy forms before filing for bankruptcy.
The most critical forms include Schedules A through J and the Statement of Financial Affairs. An experienced consumer bankruptcy attorney can help you understand the information necessary to complete the forms.
You should also consider hiring an attorney. Having an expert might help you avoid pitfalls that can cost you property, money or even your freedom.
The Bankruptcy Discharge Is Personal
The discharge of debt is the ultimate goal of bankruptcy. It bars current creditors from attempting to collect debts from you. This means that the bankruptcy discharge protects you—but only you.
It does not eliminate shared debt, just your responsibility for it. For example, if you are one of the co-signers on a home loan and you file for bankruptcy, the debt is not wiped out.
The lender can still seek to collect the debt from the other co-signer on the loan. This is a particularly important consideration if you are a co-signer with family members or friends that are not going to file for bankruptcy.
Filing for Bankruptcy Is Not Cheap
Even though you may be in financial ruin, filing for bankruptcy can cost you even more money. The amount largely depends upon whether or not you hire an attorney, and whether you are allowed to have fees waived.
Retaining a bankruptcy attorney may cost anywhere from several hundred dollars to several thousand dollars. However, even if you prepare and file your own bankruptcy case, the filing fees alone are substantial.
Destitute debtors may find relief from filing fees by petitioning the bankruptcy court for a fee waiver. The court will base its waiver decision on your income, which generally must not be greater than 150% of the federal poverty level.
Declaring Bankruptcy Can Affect Your Credit for Years
It usually takes about two years for a typical bankruptcy debtor to start recovering from a Chapter 7 case. Many creditors will shut you out.
But, that doesn't mean that you will not be able to receive credit. In fact, some creditors will jump at the chance to loan money to a former debtor, eager to charge you a hefty premium for the extension of credit.
You will also need to improve your credit score by taking on small amounts of credit as you are able and repaying it strictly according to the terms. The last thing desired from the process of filing bankruptcy is to acquire more debt.