Falling into debt is the last thing you'll ever want to happen to yourself and accumulated bills that bury your income is not something anyone would dream of. However, with the economic challenges and changes that are frequently and continually happening around us, some of us can't help it and we fall down the deepest hole we think we have been in and we just can't imagine a way out of it because our monthly earnings just aren’t enough to wrench us out of this financial fix. We've tried to come up with solution after solution but all we're actually managing to do is dig a deeper hole for our non-existent budget. In situations like this, what are you supposed to do? What answer could there be for this monetary mayhem? Is it even possible to make it through this? Well, being overly dramatic about it won't help, but the answer is yes, there definitely is a way out of this situation, it's a process called filing for bankruptcy.
Financial bankruptcy can be defined as being the process wherein a business enterprise or individual is discharged from all eligible debt or otherwise proposes a scheme wherein he is gradually able to repay the debt. This does sound nice as there is a possibility that you could be discharged from all debt but before you jump in and file for bankruptcy, let’s look at some important issues here.
Are you sure there are no other options available to you?
Once you've filed for bankruptcy and it gets processed, it stays on your credit history for as long as eight years. Although bankruptcy gives you a fresh start, this can be harsh when you're filing for a new credit line but if you are already past the point of no return, you're credit is most probably already in bad condition and having a bankruptcy on your financial history won't really matter.
One interesting amendment under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 states that 180 days before filing for a bankruptcy case, individuals must first get insolvency counseling from a U.S. trustee approved financial counselor. This measure was put in place to make sure all your options have been considered before filing for insolvency.
Need to file for bankruptcy? Understanding chapter 7 and 13 bankruptcies
You're probably scratching your head and wondering what's chapter this and chapter that got to do with anything. Chapter 7 and Chapter 13 are the two most common insolvency cases under the Title 11 Bankruptcy Code, Chapter 7 is a straight bankruptcy case. This means that you have no absolute means to pay off your debts. The next step would then be scrutiny of your assets by a court-appointed trustee and after which these are liquidated or sold in exchange for cash. Once all proceeds are gathered and disbursed to your creditors, you will then receive a discharge from all eligible debt. On the other hand, if you are eligible for a Chapter 13, this implies that you have means of paying off your debt. Many prefer a Chapter 13 where you are still able to maintain some control over the property of your estate but on condition that you come up with a repayment scheme that will be viable for both you and your creditors. This plan will still need to be approved by the court and a trustee will still be the authority which will disburse all payments to the concerned creditors.
Recently, Chapter 7 has been receiving a lot of abuse and it has received legislative amendment that states all applicants for bankruptcy must go through a means test that will either qualify them or dismiss them from a Chapter 7 case, so you should do some of your own research to determine which Chapter case you belong to.
Now I know what kind of Chapter case I need to file for. What should I do next?
Your research, if you did it right, should be able to tell you whether you need be hiring a lawyer at this point or filing the case by yourself. Hiring a lawyer incorrectly might disqualify you from a Chapter 7 case, but going into a Chapter 13 case without a lawyer might make things a bit more difficult. Further, check what your needs are and what your budget is able to support. Some lawyers will charge a flat rate while others will give a rate that's based on the amount of your debt, check what's best for you and stick with it.
Okay. I'm pretty okay with the lawyer decision. What's next?
Check how much filing will cost as this will vary from region to region and this fee will usually be up to the bankruptcy court you are under. There are even some places that will let you file a Chapter 7 for free if you really don't have the necessary resources. Having an income that is 150% below the poverty line for your relative family size will give evidence that you really can't afford the fee and their appropriate motion will be to inform you of this.
These are just some basic steps that you need to know to give you a better idea of what you're in for when you file for a bankruptcy. Planning your steps, researching your options and knowing what your budget can support will give you a better idea of how to go about your bankruptcy.