Bankruptcy is one of the most misunderstood legal processes in America. It’s not just a new word for “poor” or “broke.” In fact, bankruptcy can be used to protect people from unfair debt collectors and predatory lenders — and it can also provide complete relief from burdensome credit card payments. Bankruptcy may even help you get a fresh start on your financial life.
What Is Bankruptcy?
Bankruptcy is a legal term that refers to the state of being unable to repay debts. When a debtor files for bankruptcy, it is generally because they are unable to repay their debts in full. There are different types of bankruptcy filings, but the most common are Chapter 7 and Chapter 13.
The bankruptcy process begins with the debtor filing a petition with the bankruptcy court. The petition must include a complete list of all of the debtor’s assets and liabilities. After the petition is filed, the court will appoint a trustee who will oversee the bankruptcy proceedings. The trustee will review the debtor’s financial situation and make recommendations to the court.
Types of Bankruptcy
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common type of bankruptcy filing. It is known as a “liquidation” bankruptcy because the assets of the debtor are liquidated to pay off the creditors. In most cases, the debtor will be able to keep their home and vehicle, but all other assets will be sold to repay the debts.
Chapter 9 Bankruptcy
Chapter 9 bankruptcy is for municipalities, such as cities or towns, that are unable to repay their debts. Chapter 9 bankruptcy allows the municipality to reorganize its finances and repay its debts over a period of time.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is for businesses that are unable to repay their debts. Under Chapter 11, the business will be able to reorganize its finances and continue operating.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy is for family farmers and ranchers that are unable to repay their debts. Chapter 12 allows the farmer or rancher to reorganize their finances and keep their farm or ranch.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is when the debtor agrees to repay their debts over a period of time. This type of bankruptcy is usually used by individuals who have a regular income but are unable to repay their debts in full.
Chapter 15 Bankruptcy
Chapter 15 bankruptcy is for businesses that have operations in multiple countries. This type of bankruptcy allows the business to reorganize its finances and continue operating in multiple countries.
Who Qualifies for Bankruptcy?
To qualify for bankruptcy, the debtor must meet certain criteria. The debtor must be unable to repay their debts in full, and they must have filed a petition with the bankruptcy court. The exact qualifications for you may depend on where you live as well as the type of bankruptcy you are filing.
Advantages of Filing for Bankruptcy
There are several ways that bankruptcy can be a positive for the debtor and help relieve any financial burdens.
Gets Rid of Debts
One of the biggest advantages of filing for bankruptcy is that it allows the debtor to get rid of their debts. When a debt is discharged, the debtor is no longer legally obligated to repay the debt. This can be a huge relief for individuals who are struggling to make ends meet.
Another advantage of filing for bankruptcy is that the debtor can often keep their assets. In most cases, the debtor will be able to keep their home and vehicle. This can be a huge relief for individuals who are struggling to make ends meet.
Bankruptcy is often seen as a way to start over. When a debtor files for bankruptcy, they are given a feeling of a fresh start. This means that they are no longer legally obligated to repay their debts. This can be a great opportunity for individuals who are struggling financially, but there can be some downsides.
Disadvantages of Filing for Bankruptcy
Filing for bankruptcy is not always a good solution for individuals who are struggling financially. Although it can provide some relief from debts, there are also several disadvantages of filing for bankruptcy.
The bankruptcy process can be complicated and time-consuming. The debtor must complete a lot of paperwork and attend hearings. The process can be confusing and stressful.
Still Owe Money
In some cases, the debtor will still owe money even after they complete the bankruptcy process. This is because some debts, such as student loans,child support, alimony, and certain taxes cannot be discharged in bankruptcy.
Negative Impact on Credit Score
Filing for bankruptcy can have a negative impact on the debtor’s credit score. This can make it difficult to get a loan or credit in the future.
Not sure if bankruptcy is right for you? Learn about the downside to bankruptcy before deciding how to get out of debt.
What Happens After Filing for Bankruptcy?
After the debtor has filed for bankruptcy, the court will appoint a trustee to oversee the case. The trustee will review the debtor’s financial situation and make recommendations to the court. The court will then make a decision on how to proceed. In most cases, the debtor will be required to complete a repayment plan. The repayment plan will require the debtor to make payments to the trustee on a regular basis. The trustee will then use the money to pay off the debtor’s debts.
If the debtor is unable to complete the repayment plan, the court may order the debtor to sell their assets to repay their debts. In some cases, the court may also discharge the debtor’s debts. This means that the debtor is no longer legally obligated to repay the debt.
How Can CreditAssociates Help?
If you’re looking for an alternative to bankruptcy, CreditAssociates can help! We will work with you to settle your debts by reducing what you owe by up to half so you can get back on the path to financial freedom. Contact us today to get started or call us at 1-800-983-6693.
Common Questions About Bankruptcy:
What to avoid before filing bankruptcy?
There are a few things to avoid before filing for bankruptcy. One of the most important is to stop using credit cards. If you continue to use credit cards while you’re in debt, it will only make things worse. Another thing to avoid is trying to hide your assets. If the court discovers that you have hidden assets, it may order you to sell them. Finally, it’s important to be truthful and honest when filing for bankruptcy. If the court discovers that you have lied or withheld information, it may dismiss your case.
Should I close my bank account before filing for bankruptcy?
It’s not necessary to close your bank account before filing for bankruptcy. However, it’s a good idea to keep track of your spending and make sure that you’re not using your credit cards. If you do use your credit cards, be sure to keep track of your spending and pay off the balances as soon as possible.
Can you hide money from bankruptcy?
Hiding assets from bankruptcy is a bad idea. If the court discovers that you have hidden assets, it may order you to sell them. This can be a difficult and stressful process, and it’s important to be truthful and honest when filing for bankruptcy.
How far back does bankruptcy look at bank accounts?
Bankruptcy looks at all of the debtor’s financial transactions for the past two years. This includes bank accounts, credit cards, and other debts. The court will review these records to determine how the debtor got into debt and whether or not they can repay their debts.