What Do You Know About Bankruptcy?

Bankruptcy proceedings can be a scary, stressful time. From the mountains of paperwork to the never-ending deadlines throughout the process, it’s common for people to be confused as they fumble through the necessary steps in their quest to get to that elusive discharge order.

Types of Bankruptcy Proceedings

For individuals, there are two types of bankruptcy proceeding options: Chapter 7 and Chapter 13. When deciding which proceeding is right for you, make sure to take into account the various assets you own.

Chapter 7 is the most common bankruptcy proceeding. Generally the best option for those who have few personal assets, it’s the most straightforward option for anyone wanting/needing to declare bankruptcy.

With the help of a lawyer, you’ll submit income statements, asset verifications and tax return documents. In order to ensure your proceedings have as few complications as possible, make sure to collect your information and documents prior to actually filing.

Chapter 13 proceedings best serve individuals who have ample assets (investment properties, significant savings, etc.). In this type of bankruptcy proceeding, the goal is not to discharge the amounts owed—it is to work with your creditors to reduce the amount owed or to establish monthly payments that will help you eventually pay back your debts.

For most Chapter 13 proceedings, once the payment arrangements are agreed upon, bankruptcy is declared but the actual process continues for years (typically, payment timelines are 3-5 years).

The Bankruptcy Process

Most bankruptcy proceedings follow the same procedures:

  1. Within 180 days of filing your bankruptcy request in court, you usually must complete pre-bankruptcy counseling
  2. Once your counseling is complete, you will next file either Chapter 7 or 13
  3. Immediately after filing your official documents, an Automatic Stay is issued by the court. This order stops all collection proceedings while your bankruptcy case is processed
  4. With the case opened and the Automatic Stay issued, your next responsibility is to complete post-filing debtor education courses. These courses will teach you about setting a budget and managing your money well
  5. 3-4 months after filing, your discharge order will be complete

Cautions about Bankruptcy

Bankruptcy doesn’t magically make all of your debts disappear without consequence. Debts such as student loans and IRS tax balances are not included in bankruptcy proceedings—you still must pay back whatever you owe for these types of debt.

Furthermore, obtaining a discharge order doesn’t absolve you from all potential debt collection activities.

For instance, if your mortgage is included in your bankruptcy proceedings, you might not be personally liable for the mortgage balance once your case is closed, but that doesn’t mean you’ll be able to stay in the house. Legally, the bankruptcy trustee can sell off these assets in an attempt to resolve the original lender’s interest/investment in the property.

Moving Forward with Bankruptcy Proceedings

Before opting to file any type of bankruptcy, it’s important to fully analyze your financial situation. Considering that bankruptcy files remain on your credit report for at least 7-10 years, the decision to move forward with proceedings should not taken lightly.

Seek out the support you need to make an informed decision and make sure you understand all aspects of the process and its ramifications before you sign on the dotted line.