10 essential facts about bankruptcy to know before filing


Financial difficulties can happen to anyone. that you kept make money mistakes throughout your twenties, have gone through difficult times in your career or encountered unaffordable medical costshaving the slate cleaned probably sounds pretty appealing.

But bankruptcy requires sacrifices and has serious consequences. It is therefore important to exclude any alternative and enter the process armed with information. Once you understand what bankruptcy entails, you can decide which money moves will best protect you against future financial difficulties. Here’s what you need to know.

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1. Filing for bankruptcy costs money

You can file for bankruptcy because you’re broke, but you’ll have to release money for costs. If you’re wondering how much it costs to file for bankruptcy, it depends on your income and whether you choose to hire a lawyer.

For Chapter 7 bankruptcy, there is a $245 filing fee, $75 administrative fee, and $15 trustee fee, all of which can be paid in installments and can be waived if your income is lower. 150% of the poverty line. For Chapter 13 bankruptcy, there is a filing fee of $235 and an administrative fee of $75, both of which can be paid in installments.

You must also complete two educational courses, which will cost a maximum of $50 each. If your income is below 150% of the poverty line, you can ask the course provider to waive the fee. But what really matters are the legal costs. You can expect to pay around $1,500 for an attorney unless you choose to file on your own or with the help of Upsolve’s nonprofit bankruptcy filing tool. Note that if your case is complex, it’s probably a good idea to hire a lawyer.

2. There are several types of bankruptcies

There are six types of bankruptcies, but the most common types that individuals will face are:

  • Chapter 7 Bankruptcy, which involves a court-appointed trustee who takes care of liquidating your assets to pay your debts. You may be able to keep some property exempt, depending on the state you live in. Most of your remaining debt will be paid off, leaving you with no obligation to pay your creditors unless you have secured loans or non-qualifying student loans. . However, to qualify, your income must be low enough relative to your debt.

  • Chapter 13 Bankruptcy, in which the court provides a monthly payment plan to get you on track so you don’t have to give up your property. This prevents foreclosure, allowing you to pay your delinquent mortgage payments over time. It also prevents collection agents from calling and protects your co-signers from collection efforts. Anyone can declare this type of bankruptcy, as long as their unsecured debt does not exceed $394,725 and their secured debt does not exceed $1,184,200.

3. Bankruptcies impact your credit for years

Chapter 7 bankruptcy stays on your credit report for 10 years, while Chapter 13 bankruptcy is erased from your credit report after seven years. For both, all included accounts will be deleted seven years from the original default date.

If you have great credit, expect a huge drop in your credit score after filing for bankruptcy, which can seriously hurt your ability to access new credit. But if you’re struggling financially, chances are you already have missed payments or collection accounts that are negatively impacting your score. If so, you may notice a less drastic drop in your score, according to FICO.

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4. Considering other alternatives makes sense

If you are struggling to repay your debts, bankruptcy is not your only option. For example, debt consolidation can be an alternative to bankruptcy, but it will not be suitable in all cases. If your credit is destroyed and you don’t qualify for a low enough interest rate on a debt consolidation loan, bankruptcy might be your only choice. However, you should also speak to a nonprofit credit counseling agency to see if a repayment plan might be right for you.

5. A meeting of creditors is required

If you thought Thanksgiving dinner with your family was an invasion of your privacy, you better prepare for it. Both Chapter 7 and Chapter 13 bankruptcies require you to attend a meeting of creditors, where you will be sworn in and asked to answer questions about your finances. Anyone you owe money to will be allowed to attend, and the trustee in your Chapter 7 case may also ask you questions. This meeting is also used to ensure that you understand all the alternatives available to you and that you are truly prepared for the process ahead.

6. The process may take some time

Before you even file, you will need to complete all the required paperwork and complete a credit counseling course. Once you file for Chapter 7 bankruptcy, expect the process to take around four to six months – it will take at least 90 days to clear your debts, and certain factors can slow the process down, such as not taking your debt education course. Creditors also have 60 days to object to the release. If they do, it may delay the deadline.

If you file for Chapter 13 bankruptcy and your income is below the state median, you will have three years to pay off your debts. If your income is above the state median for a family of the same size, you will have five years to complete your repayment plan. During this period, you cannot contract new debts without consulting the trustee. Your debts are not discharged until you make each payment on time; non-payment may result in the rejection of your file, unless it is due to circumstances beyond your control.

7. Not all debts are discharged in bankruptcy

Certain debts are generally not dischargeable in the event of bankruptcy. These include:

  • Select unpaid taxes

  • Select luxury products and cash advances obtained 70-90 days before deposit

  • Alimony and alimony

  • Fees and penalties due to a court or government entity

  • Debt incurred for death or bodily injury to another in a DUI

  • Debts incurred for maliciously injuring another person or destroying their property

  • Debts that you did not include in your bankruptcy documents

  • Debts obtained fraudulently

  • Some debts refused release in previous cases

  • Homeowners association fees

Also, student loans are not dischargeable unless you can prove that paying your student loan debt would cause “undue hardship” for you and your dependents.

If you file for Chapter 13 bankruptcy, you may be able to discharge debts related to malicious destruction of property, debts incurred to pay taxes, and debts resulting from property settlements related to a divorce settlement. These debts are exempt from discharge in a Chapter 7 bankruptcy.

Other debts, including medical bills and credit card debt, can disappear with bankruptcy.

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8. A future employer could find out about your bankruptcy

In most states, employers can make hiring decisions based on information in your credit report. Your employer will be particularly likely to perform a credit check on you if you handle sensitive data or financial information as part of your job. Because bankruptcy stays on your credit report for seven to 10 years, a future employer could see it and potentially deem you unsuitable for a job.

However, some states and cities do not allow employer credit checks or limit how they can be used. These include:

  • California

  • Colorado

  • Connecticut

  • Hawaii

  • Illinois

  • Maryland

  • Nevada

  • Oregon

  • Vermont

  • Washington

  • New York City

  • Chicago

9. The process is complicated

Some cases are simpler than others. But the bankruptcy code is extremely nuanced, and if you have a complicated case, you may need to seek legal help, especially if you’re trying to get your student loan debt forgiven.

Throughout the process, you will have to fill out paperwork, take training courses, attend the meeting of creditors, show up for hearings, and more. It can take time, energy and financial resources that you don’t have. You should learn as much as possible about the process before deciding to file.

10. You may not qualify

Although there is no official minimum amount of debt you must report, people who file for Chapter 7 bankruptcy must prove that they are not earning enough income to manage their debts through a plan. reimbursement. And with Chapter 13 bankruptcy, maximum debt limits apply – $394,725 for unsecured debt and $1,184,200 for secured debt.

The bottom line

Bankruptcy is a complicated process that many people are ashamed to approach. While there’s nothing wrong with asking for this type of relief when you need it, you need to make sure it’s the right decision for you. It may seem like an invasion of your privacy, take up a significant amount of your time, and require strict budgeting in the months or years preceding the release. It also costs money and impacts your borrowing and employment future. As such, you should not make the choice to deposit until you have explored all other alternatives.

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