The Facts About Bankruptcy

Filing for bankruptcy offers a debtor a fresh start, and allows a debtor to get out from under mounting debt. However, before filing, consider that bankruptcy is a serious and complicated legal process that has long-term effects.

Bankruptcy Eligibility

Individual debtors can file either Chapter 7 or Chapter 13 bankruptcy. To be eligible for Chapter 7 bankruptcy, your income must be less than the median income in your state, unless you have almost no disposable income remaining each month after paying your bills. In a Chapter 7 bankruptcy, the bankruptcy trustee sells your non-exempt property to raise money for the bankruptcy estate. Your bankruptcy trustee then distributes the funds to your creditors in order of their priority.

If you would like to keep your assets and you have reliable income that you can document for at least six months prior to the filing of your bankruptcy petition, you may be eligible for Chapter 13 bankruptcy. Chapter 13 bankruptcy is a repayment plan that lasts between three and five years. Your repayment plan, which must be approved by your bankruptcy trustee, requires that you submit payments to your bankruptcy trustee monthly, for the life of the plan. Failure to make monthly payments will result in the dismissal of your bankruptcy case.

Impact of Filing for Bankruptcy

Filing for bankruptcy has lasting effects. For instance, your bankruptcy can remain on your credit report for 10 years following the discharge of your debts. This will affect your ability to be approved for credit in the future, like a loan. It will also affect your interest rate once a bank approves you for a loan or a credit card. In addition, if you are unemployed, a bankruptcy can affect your ability to find a job. Many employers now require that you allow them to run a credit check on you before hiring you.  

If you own your own business, you may lose it after filing for bankruptcy. Bankruptcy can make you feel isolated and alone. Some people feel embarrassment about filing for bankruptcy. They are unable to discuss it with friends, and feel people may be judgmental toward them. In addition, your creditors and your bankruptcy trustee will intimately examine your personal finances.  

Getting Legal Help

Before filing for bankruptcy, contact an experienced bankruptcy attorney to discuss your options. An attorney will review your financial situation and advise you whether bankruptcy is right for you.