Considering Filing? You Need To Know What Happens When You File Bankruptcy
What is Bankruptcy?
Thinking about filing bankruptcy? Bankruptcy is a court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses who can’t pay their bills and decide whether to discharge those debts so they are no longer legally required to pay them.
What to consider when filing bankruptcy?
Bankruptcy laws were written to give people whose finances collapsed, a chance to start over. Whether it was bad decision-making or bad luck, lawmakers could see that in a capitalistic economy, consumers and businesses who failed, need a second chance.
Chapter 7 Bankruptcy
And nearly all of them get it! The American Bankruptcy Institute (ABI) did a study of PACER stats (public court records) from 2016 and found that 95.5% of the 499,909 Chapter 7 bankruptcy cases decided that year were discharged, meaning the individual was no longer legally required to pay the debt.
Chapter 13 Bankruptcy
Only 22,388 cases were dismissed, meaning the judge or court trustee felt like the individual had enough resources to pay his/her debts. Individuals who used Chapter 13 bankruptcy, best known as “wage earner’s bankruptcy,” were about split in their success. Slightly more than half (166,424) were discharged and 164,626 were dismissed.
Who Declares Bankruptcy
The individuals and business who file for bankruptcy have far more debts than money to cover them and don’t see that changing anytime soon. In 2015, bankruptcy filers owed $113 billion and had assets of $77 billion, most of that being real estate holdings, whose real value is debatable. What is surprising is that people – not businesses – are the ones most often seeking help. They have taken on financial obligations like a mortgage, auto loan or student loan – or perhaps all three! – and don’t have the income to pay for it. There were 844,495 bankruptcy cases filed in 2015, and 97% of them (819,760) were filed by individuals. Only 24,375 bankruptcy cases were filed by businesses in 2015. Most of the people filing bankruptcy were not particularly wealthy. The median income for the 819,760 individuals who filed, was just $34,392 and expenses were just $30,972. It is important to understand that while bankruptcy is a chance to start over, it definitely affects your credit and future ability to use money. It may prevent or delay foreclosure on a home and repossession of a car and it can also stop wage garnishment and other legal actions creditors use to collect debts, but in the end, there is a price to pay.
When Should I Declare Bankruptcy?
There is no “perfect” time, but there is a good rule of thumb to keep in mind when you’re asking yourself the question: should I file for bankruptcy? If it is going to take more than five years for you to pay off all your debts, it might be time to declare bankruptcy. The thinking behind this is that the bankruptcy code was set up to give people a second chance, not to punish them. If some combination of mortgage debt, credit card debt, medical bills and student loans has devastated you financially and you don’t see that picture changing, bankruptcy might be the best answer. If you don’t qualify for bankruptcy, there is still hope. Other possible debt-relief choices include a debt management program or debt settlement, but both of those typically need 3-5 years to reach a resolution and neither one guarantees all your debts will be settled when you finish. Bankruptcy carries some significant long-term penalties because it will remain on your credit report for 7-10 years, but there is a great mental and emotional lift when you’re given a fresh start and all your debts are eliminated.
Why Would You Declare Bankruptcy?
The primary reason for declaring bankruptcy is to start all over again with a clean slate. However, there is a secondary reason for filing that might ease some of the tension related to your problems. Declaring bankruptcy will stop the badgering phone calls, letters and other attempts to contact and collect from you. Legally, it’s referred to as “the automatic stay.” It means that creditors are prohibited from filing a lawsuit against you or entering liens against your property or constantly contacting you in an effort to get a payment on the debt. It also stops things like eviction, utility disconnection and wage garnishments. Bankruptcy is a long- tormenting situation. Once you have filed, the process usually takes six months or more to complete. Before, and during that time, you and possibly your friends or workplace, have received phone calls from debt collection agencies trying to settle your accounts. Those calls must stop as soon as you declare bankruptcy. Bankruptcy in the United States Like the economy, there is a rise and fall to bankruptcy filings in the U.S. In fact, the two are as connected as peanut butter and jelly. Bankruptcy peaked with just over two million filings in 2005. That is the same year the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. That law was meant to stem the tide of consumers and businesses too eager to simply walk away from their debts. The number of filings dropped 70% in 2006 to just 617,660, but then the economy tanked and bankruptcy filings increased rapidly to 1.6 million in 2010. They retreated again as the economy improved and have gone down 50% through 2016. What is Filing for Bankruptcy Filing for bankruptcy is a legal process that either reduces, restructures or eliminates your debts. Filing bankruptcy with a court is the first step. You can file on your own or you can file with an attorney. Bankruptcy costs include attorney fees and filing fees. If you file on your own, you will still be responsible for filing fees.
A Great Alternative To Bankruptcy
A great alternative to bankruptcy is debt settlement. With debt settlement, all of your eligible debts are combined. Each month you will put an affordable amount of money into a special purpose saving account. Once you have accumulated a good amount of savings, the debt settlement firm will contact your creditors and collectors on you behalf. They will begin negotiations in the hopes of settling your debt for much lower than what you owe. Debt settlement may be the best option for you. If you would like to learn more, contact us today for your free consultation. At CuraDebt, we have a team of debt relief professionals who are waiting to help you will all of your debt related issues. 1-877-850-3328