The Bankruptcy Process: Understanding What It Means

The fact is that people are facing unprecedented financial challenges due to the COVID-19 pandemic. There is, of course, the obvious issue of job loss, as many businesses are forced to shut down to the quarantine restrictions put in place across the county. Many are also forced to spend more than they normally would, some having groceries delivered as a precaution, and others financially supporting family members who are no longer able to support themselves. Another issue, of course, is that those who have been hit personally by the coronavirus itself are facing astronomical medical bills. Although some carriers of the virus are asymptomatic, many spend weeks in the hospital. If they are lucky enough to recover, they find themselves dealing with the costs that come with that long-term medical treatment.

This has a lot of people considering filing for bankruptcy for the first time in their lives and wondering what happens during the bankruptcy process. Many of us never imagined that we would find ourselves filing for bankruptcy, and we don’t know where to begin, nor what our options will be after we file. For that reason, many are hesitating to file when they actually should, while others may be filing prematurely. Bankruptcy is not a topic that is often discussed among many. It’s considered somewhat shameful in our culture. Nobody should be ashamed of filing for bankruptcy, but it is a decision that comes with very real consequences and must be considered carefully. For that matter, you must consider the fact that as a lot of people are looking into the bankruptcy process right now, more than usual to be certain, there is a current strain on the system that normally wouldn’t be present. Filing for bankruptcy is never an instant fix, but it may take more time to get relief than what would usually be expected. With that being said, let’s look further into the bankruptcy process and try to understand more about what it entails.

When Should I Start Considering Filing For Bankruptcy?

Filing for bankruptcy is really meant to be a last case scenario, a final solution for people experiencing undue economic hardships. Unfortunately, the current pandemic has caused this to become a reality for a lot of individuals. Even if you have health insurance, you may be facing mounting bills due to the pandemic. It’s very possible that a lot of people who are being pushed over the edge by the pandemic itself were already experiencing financial strain prior to the crisis. It’s important to remember that the economic challenges that you are facing because of COVID-19 may not relent soon. The virus does not have a cure, and there is currently no vaccine available. Therefore, the United States may be experiencing an economic downturn for some time before it begins to “die down”.

If you cannot afford to pay your bills whatsoever, and cannot afford your basic needs like groceries, you may want to consider researching the bankruptcy process. It’s not meant to be a solution for a temporary issue, nor is it meant for those who can’t buy what they want. Those that file for bankruptcy can no longer take care of what they need to take care of. Many people who file for bankruptcy cannot afford to repair a leaky roof.

If you’re under the kind of financial stress that has you considering selling your wedding ring, or facing possible homelessness, you should consider filing for bankruptcy. But beginning the bankruptcy process isn’t necessarily something that you begin on your own.

How Do I Begin The Bankruptcy Process?

When beginning the bankruptcy process, you’ll first want to seek out a bankruptcy attorney. It’s important to note that you need to look for this specific type of attorney; looking up your old family attorney is not an option in this case. A bankruptcy attorney specializes in what can be a fairly complex process and will guide you along the way to ensure that you handle everything correctly. Obviously, those that are beginning the bankruptcy process may struggle with affording an attorney. However, attorneys in this specific field are well aware of their clients’ financial challenges, and most make payment plans available to them. It can be difficult to handle this process on your own, and you shouldn’t attempt to begin without a bankruptcy attorney by your side. Bankruptcy laws will shift depending on what state you live in, and of course, depending on the type of bankruptcy you file for. Determining exactly what type of bankruptcy you’re filing for is a key part of the process.

After finding a good attorney, you should look into getting credit counseling. Being counseled on your credit is not something you can decide to forego; it’s required by the federal Bankruptcy Code, and you must attend counseling within 180 days before filing for bankruptcy. Married couples must attend this counseling session together, and the credit counseling agency must be approved by the U.S. Trustee Program through the U.S. Department of Justice. Only then may the person filing for bankruptcy actually begin the process of petitioning, which in itself is incredibly time-consuming.

Petitioning itself will require that you provide documentation for all of your assets, as well as your debts, your income, your monthly household living expenses, a certificate from the above-mentioning credit counseling agency proving that you completed your counseling, a copy of the debt repayment plan approved by your credit counselor, pay stubs for the last two months if any, and of course your most recent tax return. This documentation must be incredibly detailed, particularly with regards to your debts. You’ll have to show proof of the creditor, the balance, the interest rate, and the monthly payment. While you may simply want to move forward with the bankruptcy process, it’s crucial that you show every bit of financial information that you can. Not only will this inform whether or not you truly can file for bankruptcy; it will also keep you from encountering trouble down the road. There is an incredible amount of scrutiny involved during this process, and the last thing you need is to handle something incorrectly. With that in mind, it’s important to consider the type of bankruptcy that you’re filing for.

What Type Of Bankruptcy Are You Declaring?

There is a reason why there are multiple types of bankruptcy. Everyone’s reasons for filing for bankruptcy differ, and it’s important to consider carefully the restrictions and regulations surrounding the type of bankruptcy that applies to your particular situation. Bear in mind that bankruptcy is not supposed to be easy. It’s supposed to help those facing eviction or other severe consequences. Neither type of bankruptcy is supposed to be something that people feel they can face easily.

Chapter 7 bankruptcy is one option. Essentially, it involves liquidated all of your eligible assets. Your assets are sold to pay off creditors, which will leave you with very little left over. However, some assets will be exempt from liquidation. Which assets you will be allowed to hold on to will depend on state law. The typical types of assets that are exempt may include a portion of your home’s equity, your car, tools that are applicable to your work, and specific types of personal property including clothes and household goods. The point of this process is to discharge many of your debts, ideally the majority.

Of course, the bankruptcy process isn’t straightforward, and many types of debt cannot be discharged through bankruptcy. This would include child support and alimony, debts related to the breaking of the law, bail debt, some tax debts, debts that are due to an accident caused while you were driving under the influence, home mortgages, and also some student loans. Therefore, if you owe bail bonds debts due to breaking the law, for example, you probably won’t have those debts wiped out by declaring bankruptcy. You’ll also need to qualify for Chapter 7 bankruptcy before you even file for it; this will involve passing a means test. The means test will determine whether or not you have the assets necessary to pay off your debts, and those that do not have the assets will not be able to declare Chapter 7 bankruptcy.

The other type of bankruptcy most individuals declare is Chapter 13 bankruptcy. This particular type of bankruptcy is quite different from Chapter 7 bankruptcy, as it’s meant to help people who are earning an income but are unable to repay all of their debts. In this case, you can keep your assets. However, a trustee will help set you up with a three-to-five-year plan which you must follow in order to pay off your debts. Creditors cannot pursue collections during this time, and at the end of the payment period, the courts will discharge all remaining eligible debts. Who is your trustee, you ask? Your trustee will be appointed by the court. It is their job to oversee your case and liquidate all of your nonexempt assets for those filing for Chapter 7 bankruptcy. For those filing for Chapter 13 bankruptcy, they will be responsible for distributing the funds to your creditors.

What Happens After I Petition?

After your petition is filed, you will first meet with your trustee, and then attend a meeting of the creditors. This meeting will involve you being asked questions by your trustee and creditors under oath, which you must answer truthfully. Fortunately, you will be prepared for this meeting by your attorney, and much of the material you will be asked about will have already been covered during your filing. After this point, it will be determined whether or not you are eligible for the type of bankruptcy for which you petitioned, and if so your case will move forward.

The next steps of the bankruptcy process will either involve the liquidation of your assets or the repayment plan, depending on whether or not you’re declaring Chapter 7 or Chapter 13 bankruptcy. After that process is complete, which could take years depending on what is being liquidated, or if you’ve chosen a repayment plan, your remaining eligible debts will be discharged. Chapter 13 bankruptcy requires that the individual then attend a personal financial management course, which will educate you on the handling of your finances in the future.

Keep in mind that an individual is not allowed to file for multiple bankruptcies over a short period of time. Therefore, if you file, you must be sure that this is the right moment, and that you will not need to do so in the near future.

What Are The Consequences Of Filing For Bankruptcy?

The consequences of filing for bankruptcy are not to be dismissed. Obviously, filing for Chapter 7 bankruptcy will likely result in you losing some kind of property. Furthermore, your credit score will be negatively impacted for up to ten years after you file for bankruptcy. This could very well affect how lenders view you the future and can affect whether or not you’re approved for loans or credit extensions. For that matter, it will almost definitely result in you receiving a high interest rate when you are approved for loans or credit. You may end up with high-interest debt in the future, which would be debt with an interest rate of 10% or more. It will likely take you quite some time to rebuild your credit, and depending on the type of job you seek, it could affect your prospects in that respect as well.

Obviously, filing for bankruptcy must not be taken lightly. However, if it is your only option, you shouldn’t overlook it. Working with a good attorney will help you choose the right type of bankruptcy to file for in your particular situation. And remember that your life isn’t over when you file for bankruptcy. If you handle it correctly, you could be presented with an opportunity to turn your life around and make wiser financial decisions in the future.

Of course, this current pandemic is likely presenting you with financial decisions you never thought you would make. But moving forward during the crisis is about making the tough decisions, and the more honest and straightforward you are with yourself, the easier it will be for you to make those decisions.

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