What You Need to Know About the Bankruptcy Filing Process

There’s no doubt about it – times are tough. Each and every day there are literally millions of people in the United States that are suffering due to tough financial situations that have gotten out of control. While some people have knowingly made poor decisions that have landed them in their current situation, most have seen a gradual decline in their financial position that wasn’t necessarily foreseeable. Perhaps it was a severe injury that didn’t allow them to continue working, or possibly a spike in the interest rate on their loan. Whatever the reason, there are many people seeking relief through a variety of methods, and one of the most common methods is the bankruptcy process.

When it comes to claiming bankruptcy, there are lots of things to consider. It goes without saying that the process itself constitutes a severe measure when it comes to repairing a bad financial situation; yet, for many people it’s the only decision that makes sense. Before making a final determination regarding whether not to file, it’s important that individuals first understand their individual financial situation. Many people will find that there are other methods besides a bankruptcy filing that can provide them with the help they need. The following article will briefly explain the types of personal bankruptcy and what you need to do if you think you might be a candidate for the process.

When it comes to personal bankruptcy protection there are only 2 options – Chapter 7 and Chapter 13. While there are some similarities between the two options, it is likely that one will work better than another depending upon your situation. Essentially, the decision regarding the type of protection to seek will depend on whether or not the debtor has “non-exempt” property that they want to keep.

Chapter 7 Bankruptcy

•    Also known as straight bankruptcy, Chapter 7 involves the immediate liquidation of all non-exempt assets into cash. The cash is then used to pay off the creditors.

•    A good option to seek when the debtor has minimal non-exempt assets

•    Can provide a rather quick fresh start when it comes to financial repair

•    Debtor receives quick relief from harassing creditors via legal rights

Chapter 13 Bankruptcy

•    Known as reorganization bankruptcy, Chapter 13 involves the development of a structured repayment plan, where the debtor pays back their debts over a 3-5 year period

•    The better option for people that have non-exempt assets that they want to keep (home or property)

•    Only available to those that have a predictable income, since the bankruptcy court wants to ensure that the debts will be paid back

Before you consider filing for bankruptcy it’s important that you receive counsel from a financial professional or qualified bankruptcy attorney. Since most people know little about bankruptcy and the various alternatives that exist, it’s critical that people learn as much as possible before flying blindly into the process. Fortunately, finding an attorney is easy by going online and searching for firms within your area of residence. It’s important to seek local counsel, since the laws and regulations surrounding personal bankruptcy can vary from state to state. An attorney can also help you decide which type of protection you can qualify for.

If you decide to move forward with the bankruptcy process then you will first need to enroll in a credit counseling course, and you will also be required to attend money management courses at your own expense. You will also be required to submit proof of income on the bankruptcy claim forms, which will be used to determine whether you qualify for bankruptcy. In essence, your income will be compared against the median level for your state, and if your income is above this amount and you are able to pay 25% of your unsecured debt then you won’t qualify. If this sounds complicated then please seek the advice of a financial professional who can explain everything in detail.

The brief video clip below explains what you should expect before and after initiating a bankruptcy claim.