Bankruptcy is not a dirty word, nor is it a legal process that applies solely to financially irresponsible filers. Bankruptcy impacts individuals of all ages, races, genders, and socioeconomic statuses. The Institute of Financial Literacy asserts that nearly 75% of filers are employed, over 25% generate an income of $30,000 or more, and the likelihood of women filing more often than men is only greater by less than 5%.
That said, bankruptcy should not be dubbed a shameful process, but a necessary action that helps individuals escape from an accumulating debt negatively affecting both their personal and professional lives. Filing for bankruptcy isn’t a free pass for those who no longer wish to pay their mortgage or monthly car loan, however. Filing for bankruptcy is a legal proceeding that is only successful with bona fide evidence that you do not have the means to pay off your debt(s).
Before you appear in front of a judge to declare bankruptcy, be sure to review your financial situation in its entirety. The court will examine your assets and liabilities to move forward with a bankruptcy claim anyway, so you should be familiar with the money you have coming in (income, child support, disability) as well as your debts owed (student loans, mortgage, taxes, medical bills). Utilizing a Bankruptcy Lawyer will come in handy here; they can help organize your documents and present them to the court.
You also want to familiarize yourself with the types of bankruptcy. Most common are Chapter 7 and Chapter 13 filings. Under Chapter 7, which made up nearly 61% of nonbusiness filings in 2016, almost all of the filer’s assets are sold by the court to repay debts. All remaining debts not covered by the sale of personal belongings are erased, so long as the court declares the filer’s income too low to cover the remaining debt.
Chapter 13 filings, on the other hand, allow filers to keep some or all of their assets by enrolling in a court-approved payment plan. Some or all of filers’ debts are paid under the payment plan, typically designed to last three to five years.
In short, the four key takeaways for declaring bankruptcy are:
- Outline your debts and meet with an attorney to organize all of your financial responsibilities that can or should be presented in court.
- Understand the differences between a Chapter 7 and Chapter 13 case.
- Lean on your attorney for support during your hearing, as well as any additional motions or hearings filed by creditors.
- Familiarize yourself with which debts can be forgiven by a bankruptcy claim and which cannot. Student loans, taxes, and child support payments, for example, are exempt from forgiveness.