Sometimes debt can be overwhelming and can extreme stress.
Are you going through a difficult financial situation and are seeking debt relief? Then it may be time to consider looking for a debt relief option. A common debt relief option is bankruptcy. However, before you rush to file, it is important to know what it is and how it works. You need to understand the costs of bankruptcy and other alternatives to bankruptcy to make an informed decision. Our guide explains everything you need to know about bankruptcy.
What is Bankruptcy?
It is a legal debt relief option available to people going through financial challenges to help them get relief from debt. When you are unable to meet your debt obligation, you can file for bankruptcy to enjoy release from most debts, get relief and get a fresh start. You can choose to enter voluntary bankruptcy by filing a bankruptcy form and filing it with a bankruptcy court.
What Debts Can Bankruptcy Help With?
While you can use an 11 word phrase to stop debt collectors, some debt collection agencies may sue, leaving you in an overall worse situation. Undoubtedly, filing for bankruptcy is a powerful remedy when experiencing severe debt. Filing for bankruptcy stops wage garnishments, collection activities, and most debt lawsuits against you.
It also helps eliminate some types of debt, such as personal loans through a bankruptcy discharge. However, some debts can be forgiven, and some cannot. Here is a list of debts that can be forgiven and those that can’t;
Debts that bankruptcy can discharge:
- Old utility bills
- Credit cards
- Old rent or lease payments
- Many judgment debts
- Medical debts
- Personal loans
Debts that are rarely forgiven:
- Most tax debts
- Student loans
- Restitution in criminal cases
- Judgments in DUI accidents
- Child support payments
- Debts owed to the government
- Secured debts with a car or home as collateral
- Most debts owed to the government
- Administrative costs relating to the bankruptcy case
Before filing for bankruptcy, it is essential to go through the list above to determine debts that can be forgiven and those that cannot.
How Bankruptcy Works
There are two types of bankruptcy- Chapter 7 and 13. Each type of bankruptcy works differently. Chapter 7 focuses on liquidation, while Chapter 13 offers a flexible payment plan. So, the first step in understanding the bankruptcy process is to understand how the two are different and how they work.
Chapter 7 Bankruptcy
- You can get a discharge fast, between three and six months
- It is less costly than a Chapter 13 bankruptcy
- After filing Chapter 7, it remains on your credit card for around ten years.
- To be eligible to file a Chapter 7, you need to meet the qualifications often based on income, state, and household size
- You may lose assets to liquidation, although it is not often the case.
Chapter 13 Bankruptcy
- It takes longer, and you can receive discharge between 3 and 5 years
- Filing Chapter 13 is more expensive compared to Chapter 7 bankruptcy
- After filing Chapter 13 bankruptcy, the record remains on your credit report for seven years
- Most people are eligible to file Chapter 13 since the major qualification is being under debt limits
- You may keep assets since it doesn’t involve liquidation
- You can use a Chapter 13 payment calculator to figure out how much you can expect to pay in your repayment plan.
The Bankruptcy Process
If you are considering filing bankruptcy, understanding the bankruptcy process will prepare you for what to do and expect. Below is an overview of the process:
- If you intend to file for Chapter 7 bankruptcy, start by using a Chapter 7 means test calculator to estimate your qualification
- Choose if you would like to hire an attorney. Most people do
- Ask your attorney for a free consultation and evaluation, either through phone or in-person
- Inquire about attorney fees and costs
- Enroll in a mandatory credit counseling course
- File your petition and necessary forms
- The court assigns a trustee to your case
- Meeting of Creditors Happens
- Enroll for the second debt education course
- Get a discharge
How Much Does It Cost to File for Bankruptcy?
Despite going through a rough financial time, you will pay to file bankruptcy. There are some court administrative costs and attorney fees you will pay. You can estimate your expected costs using this bankruptcy attorney fee calculator.
However, the costs of filing for bankruptcy greatly vary according to your state. Here is a guide on how much it costs to file bankruptcy. Always look up the cost in the state you live in instead of general expenses to accurately predict how much it will cost.
How Does Debt Relief Work?
After falling behind on your payments, you need a debt relief option fast to get back on top of your payments. If you are not sure filing bankruptcy is the best option for you, consider the Freedom Debt Relief Pros and Cons.
Alternatively, you can consider debt settlement, a popular alternative. However, you should be careful with the company you hire for your debt settlement needs. A Freedom Debt Relief Lawsuit in 2021 alleged malpractice in companies. So, do thorough research on a potential debt settlement company before moving forward and working with them.
Unsure of What to Do?
Are you still debating on what to do about your financial situation? Try estimating your bankruptcy qualifications and cost and comparing the costs with other debt-relief alternatives.