What Happens When You Declare Bankruptcies?
What You Need to Know About Bankruptcy
When you have debts that you cannot pay off on time, want to stop creditor harassment, and avoid foreclosure, it may be the time for you to seek legal help and declare bankruptcy.
Bankruptcy is a legal process where the debtor – either an individual or business – is given a chance to repay some, if not all, of their debts to get a fresh start. Companies also use it to liquidate their assets and distribute them evenly, should they wish to close their business. But in this article, we will focus more on bankruptcy as a legal proceeding for debt-settlement either by liquidation or a reorganized payment plan.
Before proceeding, understand that declaring bankruptcy doesn’t necessarily mean all of your debts will be paid off. There are types of debt that you would still need to repay even after your bankruptcy case is discharged.
To give more clarity, here are three debt categories in a bankruptcy case, and the types of debts they include:
- Secured Debts – this is a loan that has collateral the creditor can take when you default. Examples would be: A mortgage loan, car loan, personal loan with collateral, and in some cases may include tax liens.
- Unsecured Debts – this type of debt with no collateral, including medical bills and credit card debt.
- Priority Unsecured Debt – debt that cannot be forgiven or wiped out after filing for bankruptcy. Debts that fall under this category are government fines or penalties, alimony, child support, court-ordered payment to an injured individual, and student loan.
Now that you have a better understanding of which type of debt you can wipe out after a bankruptcy filing, you need to weigh your options first and check whether a bankruptcy petition is the best way to get out of your debt problems.
Should you file for bankruptcy?
As per the third law of motion, there is an equal and opposite reaction for every action. So, like everything else, bankruptcy has its pros and cons.
Advantages of Bankruptcy
- Filing for bankruptcy can make old tax liabilities go away.
- The automatic stay will be put into effect during the process. Under the United States Bankruptcy Code, the bankruptcy court issues an order to suspend any debt collection during the bankruptcy case. The automatic stay stops foreclosures, wage garnishment (it is when your paycheck is legally withheld to pay off a loan), repossession (which is common for car loans). Most of all, stop any lenders or collection agencies from constantly harassing you.
- Discharged debts or the cancellation of money owed from the creditors.
- Bankruptcy exemptions can protect your personal property in bankruptcy.
- A fresh start and a new chance to rebuild your credit score.
(Possible) Disadvantages of Bankruptcy
It’s not always rainbows and butterflies during a bankruptcy proceeding. Before you decide, also consider the downside of this process, which includes:
- Loss of credit cards. During a bankruptcy case, or even by the time you file, credit card companies would automatically cancel any credit cards you hold.
- Severe impact on your credit report – when you file for bankruptcy, it stays in your credit for 7-10 years, and this could result in higher insurance interests and the difficulty to secure or apply for a credit card.
- Property loss due to non-exemptions – Some properties will not be fit for exemptions, and the bankruptcy trustee can seize the non-exempt properties and sell them to pay off your creditors.
- Denial of tax refunds – the state can deny you tax turns due to bankruptcy.
- Does not discharge all debts – as discussed earlier, not all debts can be discharged when you file for bankruptcy, and this includes alimony, student loan debts, and any debts that fall under the unforgiven debts.
A First Essential Step when You Decide to File
Let’s say you have weighed your options and have decided to file for bankruptcy. The next thing you need to decide on is where to look for help. Yes, you can handle your bankruptcy case yourself. Still, suppose you are not familiar with the whole process, and you rely primarily on things you see on the internet. In that case, you should seek the assistance of an experienced bankruptcy attorney the moment you decide to declare bankruptcy.
The bankruptcy process can be tiresome for someone, not a bankruptcy lawyer, since there is a lot of paperwork to file and bankruptcy laws to get familiar with. Without a doubt, bankruptcies are expensive, whether you hire a bankruptcy attorney or not. Yes, hiring an efficient bankruptcy attorney could mean high attorney fees on top of the bankruptcy filing fees you need to pay. But hiring a skilled bankruptcy attorney can save you time and effort – which you can dedicate to finding a source of income to pay your fees and attorney. It will make the whole process easier for you since there would be little to no chance of making a mistake during filing bankruptcy forms.
Why You Should Hire a Bankruptcy Attorney
Bankruptcy cases can take up most of your time since you will be required to attend court dates and meetings, but your attorney can attend these on your behalf. An experienced and capable bankruptcy attorney can also determine which properties you can apply for an exemption to protect them from being seized. Your lawyer can also bring contempt of court action against creditors if and when they try to collect debt payment from you after an automatic stay is issued.Share This Post!
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