The act of bankruptcy is a legal process that allows individuals or businesses to have some or all of their debts discharged. This can provide much-needed relief for those struggling to make ends meet. It is often a solution used as a last resort, but it can provide a fresh start for those who qualify. Before declaring bankruptcy, you want to understand how the process works and what implications it may have.
What Are the Different Types of Bankruptcy?
There are many different types of bankruptcy, but the two most common are Chapter 7 and Chapter 13:
- Chapter 7 bankruptcy, also known as liquidation bankruptcy, is the most common type. It involves the sale of your assets to repay creditors. This option is available to those with a low income, and it can wipe out most, if not all, of your debt.
- Chapter 13 bankruptcy, also known as reorganization bankruptcy, is typically used by individuals with a regular income. It allows you to repay debts over three to five years. This can be a good option if you’re behind on your mortgage or car payments and want to keep your assets without selling them.
What Are the Eligibility Requirements for Bankruptcy?
To be eligible for bankruptcy, you must pass a “means test.” This test evaluates your income and expenses to see if you qualify for Chapter 7 bankruptcy. If your income is below the median income for your state, you will automatically qualify. If it is above the median, you will need to provide proof that you cannot afford to repay your debts.
You also need to complete mandatory credit counseling from an approved provider. This must be done within six months of filing for bankruptcy.
What Are the Consequences of Bankruptcy?
While bankruptcy can provide some much-needed relief, it is not without its consequences. One of the most significant is that it will remain on your credit report for seven to 10 years. This can make it difficult to obtain credit during that period.
Bankruptcy can also lead to the loss of certain assets, such as your home or car. It can make it difficult to get approved for a lease as well.
Even with these potential consequences, though, bankruptcy may still be the best option if you are struggling to make ends meet. It can give you a way out of debt and a fresh start that no other option can provide.
How Does Declaring Bankruptcy Affect My Credit Score?
Once you declare bankruptcy, your credit score will take a significant hit. However, you can take steps to rebuild your credit and improve your score over time:
- The first step is to get a copy of your credit report. This allows you to see where you stand and what needs improvement. You can get a free copy of your credit report from each of the three major credit bureaus once a year.
- Next, you’ll want to start paying your bills on time. This includes any debts that were not discharged in bankruptcy. Making regular, on-time payments can dramatically help improve your credit score.
- You’ll also want to avoid opening any new lines of credit. Applying for new credit can be seen as a sign of financial instability, which can further damage your credit score. If you need to open a new line of credit, shop for the best rates and terms.
- Finally, you’ll want to focus on rebuilding your savings. This will help you to avoid falling back into debt in the future. Start by setting aside a small amount of money each month to build up your emergency fund. Then, you can start working on longer-term savings goals.
By following these steps, you can improve your credit score and get on the path to financial recovery after bankruptcy.
What Happens to My Debt After I File for Bankruptcy?
After you file for bankruptcy, your debts are separated into two categories:
- Dischargeable debts can be wiped out completely in bankruptcy. This includes most unsecured debts, such as medical bills and credit cards.
- Nondischargeable debts cannot be wiped out in bankruptcy. This includes secured debts, such as car loans and mortgage payments, as well as child support and alimony payments.
Can I File for Bankruptcy If I’m Self-Employed?
Yes, you can file for bankruptcy if you’re self-employed. However, the process is slightly different than it is for those who are employed by someone else.
Self-employed individuals must provide proof of their income and expenses. Items you can use for this include tax returns, bank statements, and other financial documents. Self-employed individuals will also need to complete mandatory credit counseling from an approved provider. This must be done within six months of filing for bankruptcy.
Can Filing for Bankruptcy Stop Garnishments?
Yes, filing for bankruptcy can stop garnishments. However, you must file for bankruptcy before the garnishment is scheduled to begin.
Garnishments are typically scheduled to begin after a judgment has been entered against you. If you file for bankruptcy before the judgment is entered, the garnishment will never begin.
If you file for bankruptcy after the garnishment has already begun, the garnishment will be stopped as soon as the bankruptcy is filed.
Can I Keep My House If I File for Bankruptcy?
It depends. If you’re current on your mortgage payments and can continue to make the payments, you should be able to keep your home.
However, if you’re behind on your mortgage payments or are at risk of foreclosure, you may want to consider giving up your home in bankruptcy. This is because you’ll be able to discharge your mortgage debt and walk away from the property free and clear.
Contact the Law Office of Christopher P. Walker Today
If you are thinking about filing for bankruptcy, it’s vital to seek legal counsel from an experienced bankruptcy attorney. At the Law Office of Christopher P. Walker, we can help you navigate the bankruptcy process and ensure your rights are protected. Contact us today to begin a future free of debt.