Bankruptcy is a serious financial choice that can be a blessing for an individual or company burdened with debt. Yet, before proceeding with such an action, it is necessary to have a complete understanding of the process and consequences involved.
Here, we’ll provide the required facts that you should know about bankruptcy to allow you to make an informed decision.
What is Bankruptcy?
Bankruptcy is a judicial process by which persons or businesses who can no longer pay their debts are given relief. Bankruptcy permits the wiping out or rearrangement of debt under the supervision of the bankruptcy court. There are various types of bankruptcy filings, although Chapter 7 and Chapter 13 are most prevalent for individuals.
- Chapter 7: Also called “liquidation bankruptcy,” it is the sale of non-exempt property to pay off creditors. After the sale, most other unsecured debts are erased.
- Chapter 13: Sometimes called a “wage earner’s plan,” this allows one to retain property and pay debts in a three-to-five-year timeframe.
Why File for Bankruptcy?
There are many reasons that one would file for bankruptcy:
- Overwhelming Debt: When credit card debt, medical debt, and loans become more than you can afford to pay.
- Risk of Foreclosure or Repossession: Bankruptcy may stop foreclosure or repossession of property by making creditors put collection efforts on hold temporarily.
- Loss of Income: Losing a job or a sudden loss of income that erodes your ability to pay bills.
What to Expect Before Filing?
Before filing for bankruptcy, the following is necessary:
- Consult a Bankruptcy Attorney: It is essential to have an attorney who specializes in bankruptcy to guide you through the process. They will be able to advise you on what kind of bankruptcy will be best for you, outline possible repercussions, and help you file correctly.
- Credit Counseling: You have to undergo a credit counseling session with an approved counselor. It is a legal mandate and is designed to teach you about your money choices.
- Understand the Effect on Your Credit: Bankruptcy will also affect your credit score, and it will remain on your credit report for 7 to 10 years, depending on the type of bankruptcy. This may limit the ability to get future loans, credit cards, or mortgages.
- Collect Financial Information: You will be required to give detailed information regarding your income, debts, assets, and expenses when you apply for bankruptcy.
This post was written by Trey Wright, a Chapter 11 Bankruptcy Lawyer in Jacksonville FL! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.
The information provided on this website does not, and is not intended to, constitute legal advice; all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.
