Since the start of the global pandemic, the US economy has seen a downwards trend. Corporations and manufacturing giants have taken austerity measures, while small to medium scale enterprises have started to close down their businesses.
Bankruptcy is a legal pathway taken by many of these businesses to wave off any debt they owe or a significant portion of that debt. It might look like bankruptcy is a magic wand for all your debt problems but it can have long-term effects on your credit rating. These effects can come to haunt you in the future and you might find it difficult to get loan approval, a credit card, or any other financial/banking service.
How Do You File Bankruptcy
Filing a bankruptcy is a not-so-easy task and like all legal matters should be handled by an expert in this field. You should contact a law firm with a proven track record and one that has the best Bankruptcy Attorneys. An experienced bankruptcy attorney will be handling the procedures and comply with the rules and regulations governed by the federal bankruptcy court.
Before you can go to a federal bankruptcy court, make sure you meet the requirements for filing bankruptcy. You must be able to prove your inability to pay debt and you must have had credit counseling with a credit counselor. The counselor will help you assess your finances, discuss possible alternatives to bankruptcy, and help you create a personal budget plan.
Only then you will be able to go ahead with filing bankruptcy. Then you will have to choose between the type of bankruptcy you want to file. There are two options namely: Chapter 7 and Chapter 13.
Both of these options will eliminate the unsecured debt, stop the lender from foreclosure or repossession, and block wage garnishments. Moreover can also stop utility shutdown and debt collection from lenders. However, you will be expected to pay all the legal fees involved such as attorney fees. They both will relieve you from debt in different ways.
Types Of Bankruptcy
Chapter 7 Bankruptcy
Commonly known as straight bankruptcy, this is also the most common example that comes to people’s minds when filing a bankruptcy.
If you want to file a chapter 7 bankruptcy you will have to sell any assets that are not exempt. These assets will be sold under the supervision of a trustee appointed by the federal bankruptcy court. The money received after selling the asset will be paid to the creditors. The remaining balance or debt you owe will be eliminated once the bankruptcy is discharged.
However, there are certain limitations to what kind of debts can be eliminated by the Chapter 7 bankruptcy. It will not eliminate court-ordered alimony, child support, taxes, and student loans.
You will also have to face adverse consequences after filing this bankruptcy. These include losing property and a record of your bankruptcy information on your credit report. The bankruptcy can remain on your credit report for ten years from the date of filing. And you would not be able to file for another bankruptcy within 8 years of filing this chapter.
Chapter 13 Bankruptcy
The second option is Chapter 13 bankruptcy, it works differently than the Chapter 7 bankruptcy. It will make you pay your debt, partially or completely while allowing you to keep your property.
You are supposed to repay the amount of debt you own within the stipulated repayment plan. Your bankruptcy attorney and the federal bankruptcy court will negotiate the time period for the repayment plan. It is usually between 3-5 years.
Depending on the negotiations you may agree to repay completely or partially during this period. Once you have completed the payment your debt is discharged.
Chapter 13 Bankruptcy also has negative consequences but this type is still a better option. You can retain some of your assets after paying the amount determined in the repayment agreement. Additionally, a Chapter 13 bankruptcy will cycle off your credit report after seven years, and you could file again under this chapter in as little as two years.
What Is Not Covered By A Bankruptcy?
Filing a Bankruptcy can eliminate almost all of your debt but it does not cover certain debts and payments. These unforgivable debts that cannot be eliminated are most student loan debt, the court-ordered alimony and child support, a federal tax lien for taxes owed to the US government, reaffirmed debt, and any fines or penalties levied by the government or a court of law.
Consequences of Filing A Bankruptcy
As stated before there are certain consequences you have to face if you file a bankruptcy. The most significant one is that you might lose all of your property. Your assets might be sold off to pay creditors.
It can affect your immediate family such as your parents, they might have to pay off some of your debt.
Additionally, it can affect your credit rating on your credit record. Banks and lending firms will be reluctant to give you credit and charge you higher interest rate or strict terms and conditions. You will have to improve your credit score from the beginning of discharge by paying bills and other payment amounts within time.
You will also find it difficult to get a credit card or a loan approval until the bankruptcy information cycle offs your credit report. Similarly, mortgaging a new property will also require you to pay higher interest rates.
Where Can I Find A Bankruptcy Attorney?
Before you decide about choosing a debt relief option such as bankruptcy you should consult with a credit counselor. They can help you to decide the right plan of action if you are facing financial problems.
However, if you have decided to file for bankruptcy you should contact a bankruptcy attorney. At Amourgis & Associates Injury & Accident Attorneys at Law, they also provide you with bankruptcy consultations.
They will help you to choose between the available bankruptcy options and guide you through the complex procedures involved in filing bankruptcy. Making sure that you are able to fulfill all the requirements stated for that type of bankruptcy.