Bankruptcy is a last resort remedy for those who are so financially devastated; they cannot recover any other way. Many people hear the word bankruptcy and think of it as an irreversible and adverse remedy. While a setback, the truth is that bankruptcy can be a relief to those who have been struggling against financial losses or burdens. Here is everything you need to know about bankruptcy.
Bankruptcy Is Not a Quick Process
Leading into going into court to present your bankruptcy case, there is a lot of preparation. Once it gets to the courtroom, the process does not get any faster. Small claims court cases are usually only a day, while bankruptcy can take upwards of six months for chapter seven bankruptcy, which is the most common chapter for individuals. For the other most popular chapters, thirteen and eleven, it can take up to five years.
Bankruptcy Opens Your Finances to Public Scrutiny
While everyone involved will certainly attempt to preserve your dignity through the proceedings, they are all public and will only be held privately in extenuating circumstances. Because this is a public proceeding, you need to be prepared that your friends and family may become aware of your financial situation and learn the intricate details. These details include assets, expenses, income, debts, and recent financial transactions. And in most cases, you are required to attend a meeting with creditors, which is held in a public courtroom while your creditors can question you.
Complete Disclosure Is Required
One of the most required things by the court to consider relieving you of debt is that you are transparent, honest, and offer complete disclosure. This means you cannot leave out an asset, debt, or access to creditors. If it has been discovered that you have withheld any pertinent information to your case, not only can you lose your bankruptcy case, but depending on what you withheld, there could be an investigation opened against you by the FBI. Bankruptcy fraud is a federal crime with considerable fines and possible jail time.
Bankruptcy Forms Are Complicated
Because bankruptcy is a detailed scrutiny of your financial situation, the forms can be as complicated if not more complicated than tax forms. Filing bankruptcy requires you to answer substantial questions and make sure that you thoroughly include every detail. Because this is so complicated, you must hire a bankruptcy attorney. Hiring a professional will help you avoid mistakes that could cost you money, assets, or freedom.
The Bankruptcy Discharge Protects Only You
When considering filing bankruptcy, you must keep in mind that this only covers you and your debts. If you have any shared debts with another person, they will not be covered if you get bankruptcy relief. Therefore, if you share any debts such as a home or car loan, it is not wiped out. This means that though you will no longer be responsible for this debt, creditors can still fully collect it from the cosigner. This should be heavily considered before deciding to file bankruptcy. If bankruptcy is your only choice, you should look for ways to protect your cosigner before filing.
Filing for Bankruptcy Is Expensive
Bankruptcy can be an expensive endeavor. If you hire an attorney to help you with your case, it will cost you hundreds and possibly thousands of dollars, depending on the attorney. This expense may be a surprise considering most people are filing bankruptcy because they are struggling. Even if you proceed on your own without an attorney, the fees are still fairly substantial. In some cases, those fees can be waived by the court. This possible waiver is completely dependent upon your income, which cannot be greater than 150% of the federal poverty level.
Declaring Bankruptcy Affects Your Credit for Years
Most creditors will not extend any credit for someone with a bankruptcy on their credit history. Bankruptcy doesn’t mean that you will not receive any credit as some creditors will give you a second chance. However, this is usually a high cost through interest and fees because you are considered high risk. When considering filing bankruptcy understand that while it will help you with your current debt, it will adversely affect your credit score for years to come.
To help counteract the damage bankruptcy does to your credit score, you can build your score on other things. However, this would require that you obtain more credit, which could lead to more debt. You mustn’t incur any debt after you file for bankruptcy. Therefore, if you do obtain credit lines, be sure you pay them in full each time you use it. This can help build your credit and defray the damage that bankruptcy does to it.
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