You may have managed your money well your entire life until a sudden injury drained your savings account and put you out of work. Or perhaps you weren’t as financially prudent in your early twenties, and now your credit card debt is haunting you. No matter the reason, declaring bankruptcy may now be one of your only options to resolve your money troubles.
With the average amount of debt in an American household rounding out at nearly $140,000, it’s no wonder bankruptcy is becoming more and more common. While we’re all familiar with the term “bankruptcy”, few are aware of the intricacies that come with it.
We’re here to answer your bankruptcy questions and shed some light on this topic.
How does bankruptcy work?
When asking “what is bankruptcy?” there are a variety of potential answers you may get. From a federal standpoint, it is a discharge of your debts, releasing you from the liability of paying for them in full. For you, it is the chance for a new start free of debt.
That being said, there are some forms of debt that cannot be cleared due to rulings by Congress. These include:
- Debts not listed on your bankruptcy statement
- Child support/alimony payments
- Educational loans
- Debts for injuries caused while drinking and driving
- Debts for willful and malicious injury to people or property
- Debts created through fraud or misrepresentation
It’s also important to note that a discharge of debt can be revoked. If the bankruptcy was obtained through fraudulent means or if you commit a violation of the Bankruptcy Code, your bankruptcy may be declared invalid.
Types of bankruptcies
For your average bankruptcy, you will only be concerned with one of two types.
Chapter 7 bankruptcy allows you to cancel out most of your debts. This wipes the slate clean and allows you to start again with no debt, provided none of it is in the previously listed excluded categories. You will not be able to file another Chapter 7 bankruptcy for eight years, and it will remain on your credit history for 10 years.
Chapter 13 bankruptcy differs from Chapter 7 in that your debts are not immediately resolved. Rather, you will pay back a smaller portion of your debts, making regular payments for 3-5 years to the bankruptcy court. They will then divide your payments amongst your debts. After this period of time, the remaining total of your debt will be forgiven.
While Chapter 7 and Chapter 13 are the most applicable for the majority of people, there are other types of bankruptcies as well.
- Chapter 9 bankruptcy is for municipalities like towns or school districts.
- Chapter 11 is a reorganization bankruptcy for businesses that can help them find relief from debt.
- Chapter 12 bankruptcy offers similar benefits as Chapter 13, but for farmers and fishermen so that they can retain their business.
What should I know before filing for bankruptcy?
Choosing to file for bankruptcy is a major decision that will affect your life for years to come. While it may end up being a better choice for you in the long term, it requires a great deal of consideration before you commit to it.
Before filing for bankruptcy, you should ask yourself these key questions:
- How will this affect my credit score? Even those with good credit scores will feel the hurt after declaring bankruptcy. If you’re planning to buy a house or car in the next ten years it could be a major challenge.
- Will my debts be absolved? If all of your debt is in student loans, declaring bankruptcy won’t do much for you. You want to be sure that you’ve explored all of your options before choosing bankruptcy.
- What kind of bankruptcy should I file for? Choosing between Chapter 7 and Chapter 13 bankruptcy isn’t a quick and easy choice to make. Your individual circumstances play a great deal into your decision. The amount of property you own and the amount of income you make can impact which would make a better choice for you.
If you’re unsure where to start with your bankruptcy proceedings, contact Reynolds and Gold Law.
Our bankruptcy lawyers can help you navigate your bankruptcy every step of the way.