Personal bankruptcy is a legal process that allows an individual or a corporation to get out of debts they cannot pay. There are two types of personal bankruptcies for the average person: Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy, often known as a straight bankruptcy or liquidation bankruptcy, provides for the discharge or liquidation of certain types of debts. This indicates that the obligation will be discharged, and the person who owes the loan will not be obligated to repay it.
Most people with personal debts file for bankruptcy under Chapter 7. A Chapter 13 bankruptcy, sometimes known as a reconstruction bankruptcy, is another popular type of personal bankruptcy.
Individuals will put up a repayment plan to pay off their obligations in this sort of bankruptcy.
The individual must still pay their obligations, or a portion of them, on a timetable that the debtor agrees to and that is manageable for them.
How Do You File for Bankruptcy?
To declare bankruptcy, an individual must file three documents:
- The petition for bankruptcy
- A schedule of assets
- A statement of financial affairs.
The individual’s assets will be listed on the schedule of assets. The statement of financial affairs reveals the individual’s debts and reasons for declaring personal bankruptcy.
Both of these documents must be filed within 14 days after filing the bankruptcy petition. If a person fails to file one of these documents on time, their lawsuit will be dismissed.
Because of these concerns, individuals are advised to file their petitions, schedule, and statement simultaneously.
As a result, there is no chance of the case being dismissed for this reason.
How Do I Determine Whether I Am Eligible for Personal Bankruptcy?
There are some restrictions on who can apply for bankruptcy.
If any of the following conditions apply, an individual may not file for Chapter 7 bankruptcy:
- Previous debt discharge: The individual got a Chapter 7 debt discharge during the last 6 years.
- A previous application was denied: Within 180 days of the current filing, the individual had a Chapter 7 petition denied.
- Creditor defrauding: The individual deceives creditors by providing false information or concealing assets.
- False information presented to the bankruptcy court: The individual provided false information to the bankruptcy court. and
- Red flags: The individual has engaged in several red flag acts that indicate an abuse of the bankruptcy system.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 introduced certain restrictions to prevent people from misusing their bankruptcy rights.
What Are the Repercussions of Filing for Personal Bankruptcy?
Declaring personal bankruptcy has several effects. It is seen as a final resort for individuals or corporations who cannot pay their debts.
Declaring personal bankruptcy has both positive and negative repercussions.
Positive Outcomes
There are several advantages to declaring bankruptcy. If a person files for bankruptcy in Bankruptcy Judge and the court grants the petition, the person will likely have greater financial breathing room.
When a person files for bankruptcy, their creditors are barred from pursuing them, which is known as an automatic stay. Once a person’s bankruptcy is finalized, much of their debt will be discharged.
This includes credit card debt, credit loan debt, medical debt, and foreclosures in many circumstances.
Negative Repercussions
Although there are benefits to declaring bankruptcy, there are some significant factors to consider before filing.
Although an individual’s credit score can increase over time after filing for bankruptcy, declaring bankruptcy will initially harm the individual’s credit, both their credit score and their credit report.
Because of their financial difficulties, their credit may already be low before they file. The damage to their credit will be determined by the amount of debt they owe and the number of creditors they owe.
Due to their poor credit, they will have trouble obtaining lines of credit and various forms of loans. This includes home loans; thus, the individual will be unable to buy a home in their own name as long as the bankruptcy is still on their record.
Debts incurred during the bankruptcy process not stated in the original petition will not be included in the bankruptcy and, as a result, will not be discharged.
Debts incurred within six months of filing for bankruptcy may also be scrutinized and perhaps prohibited from discharge.
Although an individual may file for bankruptcy more than once, they will be barred from doing so for 7-10 years, depending on the type of bankruptcy filed. Because the individual cannot apply for it again for another eight years, it is critical to mention all of an individual’s most severe debts when filing for bankruptcy.
Bankruptcy is widely publicized. Declaring bankruptcy may be something the individual would prefer that no one knows. Unfortunately, if an individual has declared bankruptcy, it is a matter of public knowledge because court records are open to the public.
Bankruptcy can be costly. The filer will be obliged to pay court costs and legal expenses, which could amount to several thousand dollars that the individual cannot access.
Certain types of debt, including student loans, are not dischargeable in bankruptcy. Even if a person successfully files for bankruptcy, student loans must still be repaid.
Income tax debt is not usually dischargeable. Other debts, including child support and alimony payments, are not dischargeable.
It is also crucial to note that if a person had a cosigner for a debt, that person would still be accountable for the amount.
Depending on the type of bankruptcy filed and other factors, the individual may lose property, such as their home. In some circumstances, the bankruptcy trustee may seize the individual’s property to satisfy obligations and should an individual apply for jobs in the future. Certain employers may be put off because they have already declared bankruptcy.
What Are Some Points to Consider Before Filing for Bankruptcy?
Before filing for bankruptcy, an individual should evaluate several factors. Declaring bankruptcy may assist an individual or a corporation in getting a jump start on repairing their finances in certain instances.
Following bankruptcy, an individual will often have little trouble obtaining a new credit card.
When considering bankruptcy, an individual should consider the following aspects of their life:
- Tax effects;
- Estate considerations;
- Employment issues; and
- Family law issues, such as spousal support.
What Happens After I File for Bankruptcy?
When a person files for personal bankruptcy, one of three things happens:
- A creditor’s meeting;
- An automatic stay; and
- The appointment of a trustee
The automatic stay precludes creditors from seeking to collect debts on their own from an individual. In addition, the court appoints a trustee to oversee the debtor’s estate, which includes all of the debtor’s assets.
If a person files for Chapter 7 or Chapter 13, a creditor’s meeting, also known as a 341 meeting, will be scheduled. The debtor must attend this meeting, or their case will be dismissed.
Do I Need a Lawyer to File for Personal Bankruptcy?
If you ask, “should I file bankruptcy?” you should speak with a bankruptcy lawyer. Your attorney can advise you on the appropriate type of bankruptcy to file.
Your attorney will assist you in accurately and thoroughly filling out your paperwork, filing it, and representing you during any proceedings.
