Are creditors on your neck due to a defaulted loan, or do you have utility bills piling up, making you owe more than you can pay? If your answer to these questions is “yes,” filing bankruptcy could give you the debt relief you need to fix you financial crisis for a fresh start in your life.
While most people are familiar with the vocabulary “bankruptcy,” there is a bit of confusion about the actual meaning of this financial term. Bankruptcy is typically a legally declared inability of a company or individual to repay their outstanding debts and bills.
Although it is a reliable debt resolution or relief option, especially at current economic times, there are several facts you need to know about bankruptcy. Since bankruptcy filing is currently on the rise, it makes sense to educate yourself about this debt relief option even if you are not currently in debt. Read on for everything you need to know about this debt relief option.
What You Need to Understand About Bankruptcy
For many people, filing bankruptcy or declaring yourself bankrupt is the only viable solution to seeking relief from several overwhelming debts. However, legally declaring yourself bankrupt is not a decision you should take lightly. Before you decide to declare yourself bankrupt as a way out to settle your outstanding debts and solve your financial crisis, here is what you need to know:
Hiring an Attorney is a Wise Idea
Since this is a legal issue with strict eligibility criteria, having an attorney in your corner will go a long way if you want to declare yourself bankrupt lawfully. A bankruptcy attorney can assess your current financial situation to determine whether or not you are an excellent candidate for this debt relief option.
Apart from determining your eligibility for this debt relief option, your attorney will represent you in bankruptcy court to increase your chances of obtaining the much-needed debt discharge as you work on your finances.
However, how will you know the right and reliable attorney to hire in this field full of mediocre people?
Indeed, this could be time-consuming, but you can lessen your available options to find a dependable bankruptcy attorney without a hassle when you consider certain factors, including:
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The attorney’s specialty and experience
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The attorney’s reputation and accreditation
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The attorney’s availability
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The attorney’s licensing credentials
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The attorney’s legal fee
Declaring Bankruptcy is a Paper-Intensive Process
Before you declare yourself bankrupt, you will need to gather and prepare certain financial information ahead of time. Below is a checklist of documents that your attorney will need in order to provide you with the best advice and legal representation during the bankruptcy process:
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Financial Records
Indeed, some of the most crucial documents you will need if you want to declare yourself bankrupt are your financial records. Your financial records will help your attorney determine which form of bankruptcy best suits your unique financial situation.
For instance, if your financial records show you have a steady and regular income over a certain threshold, Chapter 13 bankruptcy could be your best fit for a fresh start. Depending on the bankruptcy option that your attorney thinks will best suit your unique financial situation, you could need proof of the following financial information ahead of time:
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Your recent bills or debts from each creditor
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Your current income (paycheck stubs)
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Your recent bank or transaction statements
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Your recent payments receipts for real estate, student loans, and vehicles (purchased or leased)
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Purchases or bills in the past year
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Retirement and investment statements
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Personal Identifying Information Documents
Your bankruptcy petition will also require you to attach a copy of the following crucial personal identifying information:
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Your legal identity card
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Your passport, if any
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Your driver’s license
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A proof of your social security number
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Legal Records
Any pending lawsuit or legal history is vital information you need to discuss with your attorney if you want to declare yourself bankrupt lawfully. Any court order or ongoing lawsuit can help your attorney determine how much you can afford to clear your outstanding debts. For that reason, your attorney could require the following legal records from you:
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File from past attorneys following legal
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Files or records from past lawsuits
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Any divorce decree
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Tax Records
Unless you are among the few exempt individuals, the court could require the following tax return records when filing for bankruptcy:
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Four (4) years of tax return records for Chapter 13 bankruptcy
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Two (2) years of tax return records for Chapter 7 bankruptcy
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Your tax transcripts
Generally speaking, your case will start once you file the necessary paperwork with the bankruptcy court. Fortunately, your attorney can prepare your petition and essential documents on your behalf to increase your odds of qualifying for a debt discharge through a legal declaration of bankruptcy.
There are two Common Forms of Bankruptcy You Ought to Know
Typically, there a several chapters or forms of bankruptcy you could file to obtain the debt discharge you need, depending on your unique financial situation. Some of the most common and preferable forms of bankruptcy for most individuals include:
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Chapter 7 Bankruptcy
Also commonly known as liquidation bankruptcy, Chapter 7 is a common path for people with financial problems and overdue debts. Under this chapter, a court-appointed trustee will sell off or liquidate your non-exempt assets (if any) and use the returns and any cash you have to pay creditors a portion of what you owe them.
However, certain assets or items are exempt from liquidation up to a certain dollar figure, meaning the trustee cannot sell them to settle your outstanding debts if they fall within that amount, including:
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Clothing
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Automobile
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Pensions
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Tools needed for employment
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Social security benefits
Unlike what most people think, you will not lose all your assets when you file for liquidation bankruptcy. Non-exempt assets the trustee can sell when you file for liquidation bankruptcy include:
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Boats
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Recreational vehicles
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Investment accounts
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Bank accounts
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Collectibles
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A second vehicle or truck
Typically, in a liquidation bankruptcy, the court will discharge your outstanding debts in about four (4) months after filing your petition papers, meaning you will no longer have an obligation to pay them. It is worth noting that you could be ineligible for liquidation bankruptcy if you have a high or regular income.
A skilled bankruptcy attorney can assess your unique financial situation to help you determine whether or not you are eligible for bankruptcy under this chapter.
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Chapter 13 “Reorganization” Bankruptcy
If you have several properties you want to keep or have a regular or steady income, Chapter 13 bankruptcy could be your best viable option to obtain debt relief. Under Chapter 13 or reorganization bankruptcy, your attorney can help you come up with a repayment plan that you will follow to settle your outstanding debts over a certain period using your monthly salary or income.
Since the court must approve the repayment plan, you cannot undermine the need to have an attorney on your side if you want to petition for Chapter 13 bankruptcy. A court-appointed trustee will collect your payments and distribute them to your creditors to settle a portion of your outstanding debts.
If you want to buy time against property seizures or foreclosure, Chapter 13 bankruptcy can give you the debt relief you need for a fresh start.
Filing Bankruptcy Provides Several Advantages to the Eligible Petitioners or Candidates
While filing for bankruptcy is a final option for most people in financial crises, it is an advantageous move that can give you the peace of mind you need if your creditors are on your neck. Below are some of the advantages of declaring yourself bankrupt lawfully:
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It can trigger an automatic stay. An automatic stay is a court order which stops your creditors, including landlords, from taking legal action against you to collect their outstanding debts.
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It will stop wage garnishment and foreclosures
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It will stop the collection agency’s harassment and calls
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It will stop the repossession of particular properties under Chapter 13
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Your credit history can improve when you file for bankruptcy
Non-Dischargeable Debts Do Not Go Away When You Declare Yourself Bankrupt
While the ultimate goal of filing Chapter 13 or Chapter 7 bankruptcy is to have a fresh start in your life by putting your debts behind, some debts are non-dischargeable. While the specifics could vary among different forms of bankruptcy, some of the most common non-dischargeable debts include (but are not limited to):
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Child support and alimony
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Certain unpaid taxes, for example, tax liens
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Most student loans
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Debts that were unlisted in your bankruptcy petition or filing
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Fine or restitution included in your sentence for a criminal charge conviction
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Debts obtained by fraud
You Can Rebuild Credit History After Declaring Yourself Bankrupt
While both Chapter 13 and 7 bankruptcy will stay on your credit history for years, you can build your credit score or rating over time if you follow certain steps. For instance, you can improve your credit rating after filing for bankruptcy when you:
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Avoid garnering new debts – One of the ways you can avoid accumulating or garnering overwhelming debts is by paying all your current bills on time or before the due date
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Apply for a secured credit card – Having a credit card in which you can deposit your money in a bank account to act as collateral or security for any future purchases can also help you stay on top of your finances for a fresh credit history
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Avoid credit companies preying on people in financial crisis – Some credit companies could offer to help you improve your credit score and history, but they are usually scams because they also want to make money out of your current financial situation
A reliable attorney will give you tips that can help you improve your credit score after declaring yourself bankrupt lawfully. If your financial situation does not allow you to pursue other debt resolution or relief options, filing for bankruptcy is an option you can consider for a fresh start in your life.
There are Other Alternatives to Bankruptcy
Filing for bankruptcy is a useful option for most people with financial stress or problems, but it has some negative consequences, like a reduced credit score for a period of time. If you are uncomfortable with the negative credit score that comes with filing for bankruptcy, you could want to consider other alternatives, including:
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Talking with your creditors to negotiate reduced interests or an extended payment period
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Debt consolidation whereby you can combine your credit card debts with other outstanding debts in a monthly payment plan at a reduced interest rate
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A debt management plan whereby you work with debt management agencies to negotiate a deal with your creditors
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Debt settlement whereby you offer your creditors a lump sum payment in exchange for a discharge of the remaining debt
Filing For Bankruptcy Does Not Affect Your Spouse’s Credit Score
Contrary to what some people assume, declaring yourself bankrupt will not affect your spouse’s credit score by itself. If you two have joint debts, which is definitely possible, then it might make sense for the both of you to file together. However, if your spouse has no debt, the fact that you file bankruptcy does not itself reduce your credit score.
Declaring Yourself Bankrupt is not Cost-Free
In addition to the attorney’s fee, you must also be ready to pay the required fee for declaring yourself bankrupt lawfully. Typically, as of 1st December 2020, the filing fees for Chapter 7 and 13 forms of bankruptcy are $338 and $313, respectively.
Bottom Line
Deciding to declare yourself bankrupt is not easy but it can be the most viable and logical option if you cannot pay your creditors. By understanding the bankruptcy process and choosing a path ideal for your unique financial situation, you can settle your overwhelming debts without unnecessary pressure from your creditors to obtain the fresh start you need in your life.
Find a Reliable Bankruptcy Attorney Near Me
Undoubtedly, filing for bankruptcy is a tiring and emotional process for most individuals trying to stay on top of their finances. However, you do not have to go through this confusing process alone.
At Sacramento Bankruptcy Lawyer, we can assess your financial situation to determine which bankruptcy path will best work out in your favor to clear out your debts for a “fresh start” in your life. Even though it could be counterintuitive, filing for bankruptcy has several benefits that you cannot overlook if you have overwhelming or outstanding debts you cannot pay.
We invite you to call us at 916-800-7690 for exceptional legal representation during the bankruptcy process to obtain the debt relief you need to rise back on your feet financially.
