(US Law) There is a lot of information presented by the popular media on bankruptcy in the United States. The perception that many people have is that they can run up all the debt they want and then the courts will just discharge it and allow the consumer to start over again. Nothing could be further from the truth.
Bankruptcy is a process that is run through the U.S. Bankruptcy Courts and involves a petition, lawyers and a long process. Regardless of what you may think about bankruptcy, it is not the easy solution that the media has portrayed it to be. There are 10 things that you must know about bankruptcy before you file for it.
All of Your Debts are not Covered
Contrary to popular belief, the courts do not include all of your debts in a bankruptcy filing. According to the U.S. Bankruptcy Courts, debts such as alimony, student loans, back taxes and personal injury settlements you were ordered to pay may not be included in the settlement. It will be at the discretion of the courts, and the courts usually leave these items out.
You Will Not Have to Give up All of Your Possessions
The most common image of someone who has gone through bankruptcy is of a person who loses everything including their house and car. Each state has its own list of items that are exempt from a bankruptcy proceeding. Your lawyer can help you understand which items are part of a bankruptcy and which items are not.
Bankruptcy is Expensive
Because bankruptcy is used by people in financial difficulty, there is a common misconception that filing for bankruptcy is inexpensive. According to the U.S. Bankruptcy Courts, filing for a chapter 11 bankruptcy costs a little over $1,000 just in court filing costs. That does not include the costs of hiring an attorney and the costs of going to mandatory financial counseling.
You Can File More Than Once
Bankruptcy should be treated as a final resort for sorting out financial issues. But if you need to file more than once, then it is allowed. According to the Bankrate.com website, a consumer can file for more than one bankruptcy so long as he allows the necessary time to elapse from his last discharge.
You Will Need to Undergo Counseling
Part of the process of filing for bankruptcy is mandatory debt counseling. The U.S. Department of Justice provides a list of approved debt counselors that you can use to meet your counseling obligation.
There is More Than One Way to File
The most common forms of bankruptcy are chapter 11 and chapter 13. But there are other forms of bankruptcy you can use to file that may fit your situation better. Discuss your options with an attorney to find the one that is best for you.
Bankruptcy Takes Time
Bankruptcy is not something that happens overnight. According to the Oregon State Bar, a bankruptcy can take three months or more to complete.
Bankruptcy Does Offer Some Protection
Once you have filed for bankruptcy, debt collectors are no longer allowed to call your home, you car cannot be repossessed and your home cannot be foreclosed. The courts will make the decisions on what will happen with those possessions in the discharge.
You Will Be Put on a Payment Plan
Bankruptcy does not usually discharge all of your debts. The more common process is some of your assets are sold and those proceeds are applied towards your debt. Then the courts negotiate settlements with your creditors and then the courts put together a payment plan that you must pay on every month.
You have Very Little Control
Once you file for bankruptcy, the courts will request a report of your assets and liabilities and then you are out the decision making process. You will be at the mercy of whatever the courts decide.
Ryan Devereux writes on behalf of an accounting firm that handles bankruptcies. They have many accounting resources to help you avoid bankruptcy as well.
