As Michael Scott learned in The Office,getting rid of debtisnt as simple as that announcement.
Wouldnt that be nice?
Many people think of filing bankruptcy as an easy way out.
But these people have never filed bankruptcy.
And it comes with consequences mainly a serious hit to your credit.
But it can also be a lifeline.
Bankruptcy creates an orderly, sanctioned plan that tells you who you have to pay back and how much.
That sense of order alone can be a relief for anyone staring into a pile of past-due bills.
Are you struggling to cope with financial stress?
First, take a deep breath.
Then, take a look at our roundup ofresources to help you manage your stress and your money.
And you wouldnt be the first person to seek relief from financial burdens.
TheBankruptcy Act of 1898first introduced the concept of debtor relief to modern society in the United States.
Types of Bankruptcy
Individuals and couples can file one of two types of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 is the most common and is often referred to as liquidation bankruptcy.
Its for individuals who can prove they dont have the income or means to pay off debts.
Filing for bankruptcy doesnt mean youll lose everything you own.
In many cases that can include your car and primary home.
The rules and exemptionsvary from state to state.
Most people can expect the process to take anywhere fromthree to six months.
During this time frame, debtors are not allowed to take on any additional debt.
You wont have to liquidate any assets in Chapter 13, meaning you could keep your house.
Chapter 13 bankruptcy does come with some debt limits.
Heres a basic overview:
*Debt limit, fees and requirements are accurate as of August 2024.
Can You Survive 10 Days of Budgeting?
If it’s crucial that you wrangle your budget, it may be time to consider a savings challenge.
Then, youll file the petition withthe bankruptcy court in your federal judicial district.
Theres at least one in every state.
In most cases, this administrative process is carried out by a trustee appointed to your case.
Theyre an impartial player who can challenge creditors claims or yours, based on conversations with both.
Then a bankruptcy judge decides whether to discharge your debts.
For Chapter 7 filings, debts are discharged within a few months after the liquidation of non-exempt assets.
And you get to keep your property.
Non-exempt assets may be retained.
This is called an automatic stay.
If a company continues to take a stab at collect during the stay, itsviolating a court order.
Let the company know in writing, and the collections will likely stop.
If they dont, notify the bankruptcy court, which can punish the company for violating a court order.
What Does Bankruptcy Do?
Bankruptcy will be a black mark on yourcredit history one that lasts up to 10 years.
The immediate impact is typically a significant drop, as the filing will be on your credit report.
But if youre in over your head with debt, your credit is probably already pretty marred.
Some experts say bankruptcy wont hurt your credit much more than a poor payment history.
Just confirm filing bankruptcy is really your best option, because the aftermath is not fun.
Heres one womans story ofwhat it feels like to declare bankruptcyand how she repaired her credit afterward.
People often use a debt settlement agency to help with this process.
Here are some best practices when improving your financial wellness:
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FAQs About Bankruptcy
Not necessarily.
Bankruptcy can discharge some or all of unsecured debts.
Other types, like student loans, child support and tax obligations, are generally not dischargeable.
If you file for Chapter 7 bankruptcy, you may have your non-exempt assets sold to pay back creditors.
However, essential items such as your primary residence may be exempt.
With Chapter 13 bankruptcy, your primary residence can generally be retained provided you follow your repayment plan.
Remember when youre filing: Bankruptcy is a legal action judged in federal court.
So if you attempt to pull one over on your judge or trustee, expect some serious consequences.
Yes, it is possible but there are time limits.
Multiple filings will have a major impact on your credit.
Dana Miranda is a former writer and editor at The Penny Hoarder.
