Things to Know Before Declaring Personal Bankruptcy

Is your current financial situation causing debilitating stress? If your bills are piling up and you can’t think of any other way to clear your debts, you’re probably considering declaring personal bankruptcy. Unfortunately, filing for personal bankruptcy might not be an option and may even be the only way to pull yourself out of your current financial rut.

By definition, bankruptcy is a legal process suitable for any individual unable to pay bills and debts. It can help you wipe out your current debts, absolve you of any debt-related responsibilities, and even re-organize your finances.

However, filing for bankruptcy isn’t always as easy as it may sound. The process is not only complicated, making it difficult for the beginner to navigate, but is often very expensive. While people’s bankruptcy experiences are different, it’s often difficult to visualize a clear picture of what will happen after the average case.

Here are some crucial details you’ll need to know before declaring personal bankruptcy to help you better prepare for the process. For more information about the different types of bankruptcy chapters in the US, check out this helpful resource.

 

Bankruptcy forms are complex

Filing bankruptcy is not as easy and straightforward as many might initially perceive it to be. The process involves a series of complicated forms and other time-consuming paperwork, just like the tax return forms. In most cases, these forms come plastered with complex questions regarding your financial details.

Before filing for bankruptcy, make sure you take the necessary time to analyze, understand, and fill out the forms completely. If you’re having difficulties navigating the maze of this paperwork, you may need to consult with an experienced bankruptcy lawyer who can walk you through the process and help you complete the forms correctly.

 

Bankruptcy isn’t an easy process

As you prepare to file for bankruptcy, it’s essential to note that it’s not an in-and-out process. Bankruptcy cases operate differently from small court claims, which usually conclude in a few days. There are two primary bankruptcy options to choose from: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Chapter 7, known as liquidation bankruptcy, will discharge almost every unsecured debt, including credit cards and personal loans. However, to qualify, you’ll be required to meet a specified income bracket, sell non-exempt assets, and pass a means test. The entire process lasts up to four months and allows filers to keep most of their assets.

On the other hand, Chapter 13 (reorganization) bankruptcy will put you in a repayment program and make you pay back your debts over time. Although it doesn’t require property liquidation, the whole process might take up to five years to finalize. To qualify for Chapter 13 bankruptcy, you must have a regular income to cater for the required monthly expenses.

 

Complete disclosure and honesty are critical requirements

Complete honesty is essential when filing for bankruptcy. The courts only allow honest creditors to discharge a debt. Therefore, you must provide a list of all your creditors, debts, property, and assets when filing. Remember that if a court senses any dishonesty, you risk having your bankruptcy case dropped. Furthermore, bankruptcy fraud is considered a serious and punishable federal crime in all 50 states.

 

Bankruptcy paperwork filings and finance scrutiny are public

If you decide to file for bankruptcy, you should be ready to go public. During the process, the filings and your finances will be subject to public scrutiny. Those who avoid discussing their income or financial status with their family or friends will need to conquer these anxieties and embrace the reality that their finances will be released inevitably. 

If you want to file for bankruptcy protection, chances are you’ll be required to fill out additional paperwork known as bankruptcy schedules. This extensive package will list your assets, expenses, debts, income, and current financial transactions.

 

Declaring personal bankruptcy can affect your credit in the future

After filing bankruptcy, it’ll take you about two years to start recuperating from a Chapter 7 case. At this time, almost all creditors will turn you down. However, you will still qualify for loans from those lenders who might want to take advantage of the situation and charge you higher credit extension rates.

Improving your credit score is another uphill task once you’re through with your bankruptcy case. To boost your credit score, you may need to limit the number of loans you take out and repay them strictly based on the terms. This way, you can avoid acquiring more debt and maintain a good credit score.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.