Personal bankruptcy is a legal process where individuals who cannot repay their debts seek relief for some or all their debts. When you file for bankruptcy, a judge and court trustee will examine your current assets and liabilities to determine whether or not to accept your request.
Although taking the action has long-term consequences, it’s not as bad as it may sound. There are several reasons why you may need to file for bankruptcy now.
The bank is foreclosing on your home
One of the common reasons why people file for bankruptcy is when banks are foreclosing on their homes. After filing, the automatic stay order will prohibit your lenders and creditors from continuing collections against you. You’ll also be safe from foreclosure proceedings.
Your car is being repossessed
The second reason why you should consider filing for bankruptcy is if your lender has plans to repossess your car. The automatic stay will also prohibit your lender from taking such actions. Also, once you have filed, the law requires financial institutions to give back the vehicle if it was repossessed recently.
You’re moving to a new state with harsher credit laws
Have you just moved into a state with less favorable exemptions? You should consider filing for bankruptcy as the law in your new state may not protect you as much as those in your old state. Every jurisdiction has exemptions you can use to protect the assets you need to work and live.
You’re being evicted
Eviction from a rental property is one of the reasons why many people file for bankruptcy. In most cases, bankruptcy will offer protection against most evictions, but this doesn’t last long.
Unfortunately, if your landlord has already obtained a judgment for possession, filing for bankruptcy won’t be helpful in this situation.
You’re being sued
If you’ve been sued for issues such as medical bills, credit card debt, or auto accident damages, you can protect yourself by filing for bankruptcy. Bankruptcy can’t stop all lawsuits, but if they’re related to your bankruptcy case, at the very least it’ll freeze the case until your bankruptcy is finalized.
How does personal bankruptcy work?
The law gives you the ability to relieve part or all your financial obligations when you cannot repay them. There are two types of personal bankruptcy that you can consider: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy
If you file for Chapter 7 bankruptcy, you can discharge all your debts. The discharging is done once all your liquid assets have been used to repay some of your debts. Liquid assets refer to all assets that can be easily converted into cash.
For you to qualify for this type of personal bankruptcy, you must prove that your income is less than the median income. Additionally, you must go for credit counseling in approved credit counseling agencies. You can find a list of the approved organizations by visiting the U.S. Trustee Program’s website.
Chapter 13 bankruptcy
You can also file for Chapter 13 bankruptcy. For this type of bankruptcy, you’ll be required to repay all or part of your existing debt based on a payment plan. Usually, the repayment period is between 3 and 5 years. One of the requirements when doing the filing is submitting a repayment plan for your debt.
After submitting the plan, you should start making payments to the court, which will then pay your creditors. This is a legal requirement whether or not your plan has been approved. A hearing is held a few weeks later to approve the plan. Once you have adhered to the payment plan, the remaining debt is discharged. You’ll not be liable for all discharged debts.
Do you need an attorney to file bankruptcy?
In some cases, it may be tempting for people to file for bankruptcy on their own without hiring a legal representative. For such individuals, paying an attorney doesn’t make financial sense as they’re already facing financial constraints.
However, there are numerous benefits of getting legal aid. The legal expert will do more than just sign your forms. Here are some of the reasons why you should consider contacting a bankruptcy law firm to help you do the filing:
Attorneys understand the law
The bankruptcy code is complicated even for inexperienced lawyers. A professional bankruptcy attorney is conversant with the applicable legal provisions and the ones you need to know about as a debtor.
Note that laws change from time to time. Therefore, you need to hire someone who’s up to date to offer insights on what’s happening currently and how to go about the filing process. Their knowledge means they’ll handle your situation quickly.
Attorneys offer aggressive protection against lenders
Your lenders can get pretty aggressive the more the money you owe them. However, when they know you’re working with a personal bankruptcy lawyer, they’ll unlikely to harass you to make payments. If they’re too insistent, you can refer them to your attorney.