For many people, the concept of bankruptcy is a scary but vague one; most people have a vague notion that filing for bankruptcy is a desperate act that usually involves a person losing all of their possessions. Movies and television shows are filled with dramatic scenes of rich people being dragged from their decadent, now repossessed, homes. All of these grim dramatics overlook one crucial idea behind American bankruptcy law: it is designed to help you. For those who are unable to pay their debts off, filing for bankruptcy can be a lifeline. If you are in dire financial straights, these are the things you need to know about how bankruptcy works.
Who Can File
Generally, anyone can file for bankruptcy. An honest person who has no other way to ever be able to repay their debt can file for bankruptcy in order to save themselves from continued financial strain.
A person who intentionally incurs large amounts of debt with the intention of eventually filing for bankruptcy is not eligible. The bankruptcy process is not a get-out-of-debt-free card. You must show your income tax returns, as well as vehicle registration, retirement fund and bank statements, mortgage statements and proof of value for all of your property.
Once you decide to file for bankruptcy, you go to court in order for the judge to decide how you will repay your debt. Depending on the type of bankruptcy you file under, you will either sell as many assets as possible or agree to a structured repayment plan to repay some or all of what you owe. In either case, the fact that you filed for bankruptcy stays on your credit report for ten years after your bankruptcy was discharged.
Chapter 7 vs Chapter 13
There are two ways to file for bankruptcy. Both stay on your report for ten years, and both involve repaying as much of your debt as possible. The primary difference is how you pay it back. Under Chapter 7, you allow an appointed trustee to oversee the selling of most of your possessions and property. Any work-related property, like clothes and a car, along with basic furnishings are exempt. The amount of debt remaining after your property has been sold is discharged. Chapter 13 bankruptcy allows you to keep your property in exchange for following a structured 3-to-5-year payment plan.
The process of filing for bankruptcy is not to be taken lightly. Hiring a bankruptcy lawyer could ease your stress and help you keep more of your property.