How Bankruptcy Works
In ancient Greece, the system clamped down severely on debtors who could not meet their financial obligations. You and your loved ones may be subject to debt bondage and forced labor at the hands of your creditors. Whatever the case may be, he’s got you until your debts are paid or you die. Even if in most places the term “debt slavery” is merely figurative, the stress produced by increasing debt can feel like you’re dragging along a ball and chain when you have to pay for expensive medical care.
Even the strongest of us would buckle under the pressure of mounting credit card debt and unmanageable student loan debt if there were a magic phrase we could utter to make it all go away. As you may know, I’ve filed for bankruptcy, and Michael Scott has rapidly learned the ropes. Not merely a term. When you file for bankruptcy, all of your debts are immediately forgiven.
Legal insolvency is a difficult state meant to help those who are struggling financially. It may be time to consider bankruptcy if you have reduced your expenses to a bare minimum and are still unable to meet your loan payments. When you’re drowning in debt, that respite can seem like a life raft. But how exactly does bankruptcy work? What are the potential drawbacks, and will it actually solve all of your issues in the US? Insolvency can manifest itself in a variety of ways.
Personal bankruptcy is the most prevalent kind of bankruptcy, but there are also forms of bankruptcy for corporations, farmers, and even towns. Chapters 7 and 13 are the most often referenced ones. The first thing you need to realize is that, yes, filing for bankruptcy does have a financial impact.
In fact, the filing fee for Chapter 7 bankruptcy is $335, whereas Chapter 13 bankruptcy is $730. If you decide to retain legal representation, you’ll need to budget anywhere from $1,500 to $4,000. This range is based on the chapter of bankruptcy you file for and the complexity of your case. Chapter seven bankruptcy is a liquidation bankruptcy in which you sell off nonexempt assets to repay your creditors.
It’s not open to everyone; the government prioritizes helping those on low incomes who are unable to repay all or a significant portion of their obligations. You need to finish this chapter first. A check of seven means.
If your annual salary is below the state median, you should be able to pass with relative ease. This figure typically ranges from $40,000 to $70,00,000. Once again, the specifics will vary by state, and you can learn about them here.
If your income isn’t low enough, showing that you don’t have much spare cash can be enough to get you through the exam. If you’ve already taken and passed one of these exams, then all you need to do is complete out forms 122, A1 and A2. If you file for bankruptcy, the court will decide what assets are available for sale, but each state has its own list of exempt property, which typically includes a car, some of the equity in your home, and even cash from bank accounts and retirement savings. Filing jointly as a married couple can usually quadruple the value of exemptions, which means you’re less likely to end up homeless or without transportation.
Credit cards and school loans are out of the question for you until you’ve proven yourself financially responsible. Lenders are prohibited from further telephone harassment, yet they will not disappear. The government does not forgive student loans. If you don’t qualify for chapter 7, reorganization bankruptcy (chapter 13) may be an option.
Filing for bankruptcy does not result in the sale of your property; however, you will be required to complete a three to five year: court mandated payment plan. If you follow the court’s rules and make all of your payments on time, any unsecured debts (such as credit card and medical bill balances) that remain after this time period may be discharged or forgiven. In order to qualify for chapter 13 bankruptcy, you need to meet certain income and debt thresholds (an unsecured debt total of less than $394,000, plus a secured debt total of less than $1,184,200). However, just like in chapter 7, even if you successfully complete the process, you will not be able to discharge certain debts, such as tax debt, child support, and yes, student loans. If you’ve ever considered filing for bankruptcy, you know that doing so can have a devastating effect on your credit score and that doing so can remain on your report for seven to 10 years.
Because of this, it may be difficult to obtain a new rental or even a new work. Many prospective employers now check applicants’ credit records; however, if you were already behind on your debt payments prior to filing, your score was probably already rather low, so there’s no need to panic. Damaged credit is analogous to a broken bone. Keep in mind that this bankruptcy will also be public record, and that they are designed to mend over time so long as you follow doctor’s orders and refrain from the activity that broke it in the first place.
You won’t have to wear a scarlet letter on your chest, but if the court orders wage garnishment, your employer and any cosigners on your debts will be informed. Finally, before you may receive a discharge of your obligations, you must complete an approved or certified consumer debt counseling session. These are meant to assist you avoid bankruptcy by providing you with financial education and budgeting tips.
Again. Bankruptcy, if used as a last resort, can offer you the relief you need, but it is not a simple or fast process. Filing and acceptance can take many months, and you must be 100% diligent about following every court order to the letter and paying every bill you’re still on the hook for, like property taxes and student loans. Even though it’s difficult, it’ll eventually be over and you’ll have a fresh start.