Bankruptcy is no longer a word or a status that one should be ashamed of. As a legal person or individual, you might be experiencing some financial troubles that you are not able to overcome. Quite often the cause for this misfortune might be a failure to repay your student loans, cover unexpected medical bills or follow on your mortgage installments. In such cases, bankruptcy can be the right way to deal with the situation if you do it properly. Knowing the answer to the questions below will guide you through the process and insure its successful finalization.
Which are the main types of bankruptcy?
There are six types of bankruptcies in total but three are the main ones that are used:
- Chapter 11 bankruptcy is the type that businesses use. It is often referred to as “reorganization” bankruptcy and can be used by companies of different size – from corporations to sole proprietors. The main difference is that in case of a corporation filing for Chapter 11 bankruptcy the personal assets of the stockholders are not at risk. The only asset concerned is the value of their investment in the company’s stock. When the bankruptcy case is open for a sole proprietorship, however, it includes both the business and personal assets of the owner/s.
- Chapter 7 Bankruptcy is one of the most popular forms used by individuals who are unable to repay their debt. Not everyone is eligible to file for this form of bankruptcy. You need to submit a means test form, which is basically answering questions about your marital and financial status. It is used by the court to determine whether you are eligible to apply for a Chapter 7 bankruptcy. The basic criteria are that you should have average income and assets less than $45,000 in equity in your home.
- Chapter 13 Bankruptcy is the type to choose if you are faced with a foreclosure and you would like to save your home. When you file for chapter 13, the court does not discharge your debt but provides you with a scheme to repay it. The repayment plan is usually three to five years long. Keep in mind that this type of bankruptcy also affects your credit score and will be part of your credit record for 7 years.
The other three types of bankruptcy are under Chapter 9 that is for municipalities that need to resolve their debt; Chapter 12 for family farmers and fishermen and Chapter 15, which applies in international cases.
When bankruptcy is the right choice?
In some cases of financial trouble, there are other ways to repay your debt – like applying for a second mortgage, starting a second job, setting up a tighter budget or even moving to live with your relatives. In other instances, however, bankruptcy can be the best way to clear your debt and start your life anew. Consider filing for bankruptcy in case you want to:
- Save your home from foreclosure
- Discharge significant unpaid debts
- Forget about your student loans
These are the three main cases when it is worth consulting a bankruptcy attorney, who can guide you through the bankruptcy process, advice you on the proper form to file and help you rebuild your credit score afterwards.
What Does the Bankruptcy Process Include?
The bankruptcy process is not so complicated, however it consists of several important steps that should not be omitted. One of the things that people are not aware of is that you are required to attend two courses as part of your bankruptcy – one is prior to filing and the other one is once the case is filed but prior to the court’s decision. So, here are the main bankruptcy stages:
- Credit counseling – you are required to complete a course in credit counseling and debtor education prior to filing your bankruptcy petition. At the end of the course you are given a certificate that you need to enclose in your file with all the other documents. Your case will not be reviewed by the court without it.
- Fill out an Intake form – this document contains all the necessary information about your debts, budget, property, etc. You can find the form in every attorney’s office. The intake form can be filled both electronically (online) or at the office – depending on the local practice.
- Compile your documents – your attorney will inform you, which documents to prepare for the petition. Keep in mind that the court requires to receive them in PDF format. Don’t forget to claim any additional benefits or discharges that you are entitled to. These additional advantages are not automatically added to the petition and should be specifically claimed. As attorneys are well aware what can be additionally claimed, it is better to use their services, rather than file on your own.
- 341 Meeting of Creditors hearing– once the file is received by the court, they appoint a Trustee and schedule a 341 Meeting of Creditors hearing within 4-6 weeks. If you have filed a Chapter 13 bankruptcy there is also a Confirmation hearing that you have to attend. Both hearings can be on the same day or at different days depending on the state regulations. During these meetings you will be asked questions about your situation so that a decision on your petition can be made.
- Finacial Management Course – this is the second course that you need to attend as part of the process. Once your case is filed and you know the case number, you can sign up for the course. It takes about two hours and depending on your financial status may be free of charge or cost about $50. You have to present the certificate for completing the course in order to receive the court decision.
These are the main steps of the bankruptcy process. Under the guidance of an experienced attorney it is not complicated and fairly easy to navigate. Once the court declares you bankrupt, your credit score will be badly affected. Therefore, you can consult your attorney for some advice on how to start repairing it and if they can assist with the process.
How to recognize the good bankruptcy attorney?
In order for the entire bankruptcy process to go smoothly, you need a reliable bankruptcy attorney who can navigate through the system and get the best out of the situation. What you should be looking for in your attorney:
- Significant experience – the attorney should have the proper education and experience in dealing with bankruptcy, foreclosure and student loan discharges in order to be able to assist you effectively;
- Reasonable workload – a professional who deals with 150-180 cases per year is more likely to show personal attitude towards your case, than someone with say 1,000 cases. Make sure that you will be dealing with the same person throughout the entire process and not being transferred to their assistants or junior colleagues.
- Free consultations – most bankruptcy attorneys offer a free first consultation on issues related to Chapter 7 and Chapter 13 bankruptcy cases. This is a great opportunity to get to know the person and decide whether to proceed further with them and what to expect.
With all this information in mind, you will be able to make the right decision if the time has come to file for bankruptcy. It is a totally manageable process and if the advantages outweigh the possible negative effects in your case, do not postpone the decision too long. Remember that people like Walt Disney and Henry Ford went bankrupt at some point in their life, but that is not what they are remembered for.