What To Expect After Filing Bankruptcy
An individual or business can file for bankruptcy if they lack the finances to settle their debts. Bankruptcy can be attributed to various reasons including self-imposed issues such as poor financial planning that leads to unreasonably too much credit card debt. It can also be as a result of unforeseen circumstances like a significant financial blow or some debilitating illnesses. Filing for bankruptcy usually is the last resort for any person. There is a common misconception that filing for bankruptcy sets you free from your debt obligations, but this is not true.
There are many kinds of bankruptcy with the most common ones being chapter 7, chapter 11 and chapter 13. If you file for bankruptcy with chapter 13, you will keep your assets but have a debt payment plan of up to 5 years. This plan is determined by what you earn against what you owe. It includes details on the amounts of money and time you intend to make payments. If you meet qualifications, some of the debts may be discharged through some debts like child support, and employee dues have to be paid in full. The chapter 13 bankruptcy takes up to 5 years to close up.
Only businesses are allowed to file for chapter 11 bankruptcy. They are then allowed to continue operating without any interference from creditors or liquidation of their assets. They, however, need to plan on paying at least some of their debts or get it forgiven. Creditors and shareholders have a say on any decisions made here, and it is generally an agreement between the business, the creditors and shareholders at large. It takes between 6 months to two years for the bankruptcy to a close. Filling for chapter 7 bankruptcy will lead to the liquidation of assets. It is pretty quick and closes in a few months.
After filing bankruptcy, the automatic bankruptcy stay comes into effect. Creditors will no longer be able to collect debts from you, get any bank deductions from your bank account, garnish your wages or attempt to obtain any debt by other means. Prominent moguls and large companies such as General Motors and United Airlines have once filled for bankruptcy to create a window for rebuilding their financial status while continuing with their businesses as usual. In general, such big companies and successful investors file for bankruptcy after suffering a significant financial brow to keep doing their business, emerge in one piece, and pay out their debts in a manner that does not worsen their financial crisis.
Bankruptcy will make your credit score nosedive which will in return make your life difficult in a number of ways. All the three bankruptcies impact you for a long time with chapter 7 and 11 remaining on your credit report for ten years, and chapter 13 seven years. After the bankruptcy periods erupts, most debts are discharged except debts like taxes, divorce-related debts, and debts for personal injury or death caused by drunk driving.
Filing for bankruptcy is not free as many could expect. You are required to pay some filing fee that can be up to $5000 for chapter 13 and even more for chapter 11. You are also expected to pay the attorney's fee. Individuals planning to file for bankruptcy are required by the government to join credit counseling 180 days in advance and a debtor's education if they want a discharge on their debts. If fortunately, your debts are forgiven, discharged or canceled, then you are no longer expected to repay any debts.