What is Bankruptcy?

Bankruptcy laws are the federal statutes that can allow an individual or a business entity that has unfortunately ended up in an untenable financial position to “wipe the slate clean” and start fresh with most—if not all—outstanding debts discharged. There is a famous quote in Bankruptcy Law that states Bankruptcy can afford “the honest but unfortunate debtor … a new opportunity in life and a clear field for the future, unhampered by the pressure and discouragement of preexisting debt.” Put simply, Bankruptcy can allow you to eliminate most—and oftentimes all—of your outstanding debt when it has become just too overwhelming and burdensome for you.

Is Bankruptcy a Good Idea?

That entirely depends upon your specific circumstances. If your bills have just gotten completely out of control, you’re being hounded by creditors and collectors, you’re at risk of having your property repossessed, you’re in foreclosure or being threatened with foreclosure, or any single one of those things, then Bankruptcy can be a valid option. Nobody should ever have to live in fear of accepting a phone call or answering their front door and nobody should ever experience sleepless nights or unbearable stress because of an unpaid debt. Foreclosure, repossession, wage garnishments, harassing phone calls, nasty letters, etc. can all be halted immediately upon filing for Bankruptcy protection. That’s why they call it Bankruptcy PROTECTION.

Is There a Downside to Filing for Bankruptcy?

There are repercussions to filing for Bankruptcy, and that is something that must be weighed heavily before making a decision to file for Bankruptcy protection. In almost all cases you will be able to retain your primary residence, primary vehicle, bank accounts, retirement accounts, life insurance policies and all of your personal property, however your credit score will take a major hit and the Bankruptcy can remain on your credit report for a period of up to ten years. Additionally, once you file for a Chapter 7 Bankruptcy, you will no longer have the option to file again for a period of eight years. In time though, your credit score will come back up and as long as you take care to manage your finances moving forward you should be able to avoid another Bankruptcy filing.

Are There Alternatives to Filing for Bankruptcy?

If you aren’t looking at foreclosure, repossession, wage garnishment or some sort of substantial disruption to your finances but simply want the harassing phone calls, nasty letters and threats of lawsuits to stop, then maybe you don’t need to file for Bankruptcy. Having an attorney reach out to your creditors to discuss a payment plan, to request a lowering of interest rates or demand some sort of reduction in your overall balances in order to prevent you from having to file Bankruptcy is a viable alternative. Debt settlement can lead to a considerable reduction in your monthly payments and your overall debt situation without the need for filing Bankruptcy, which can relieve stress, end the harassing phone calls and letters, stave off foreclosure and protect your credit, all while still leaving the door open should you ultimately still need to file for Bankruptcy in the future.

I’ve Heard About Something Called the “Means Test”. What Is It and What Is It For?

Unfortunately, in the past, a lot of people that didn’t need to were taking advantage of the Bankruptcy system and so the Means Test was created to discourage such abuse. Simply put, the Means Test is a way of determining whether or not you qualify to file for a Chapter 7 Bankruptcy (most of your debts will be discharged), of if you have to file under Chapter 11 or Chapter 13 (you will still have to repay your debts, but many of them can be reduced and you will be put on a manageable payment plan). The Means Test will take into consideration the size of your household and your income in order to determine if you are eligible to file for Chapter 7. If you don’t qualify to file under Chapter 7, all is not lost, you still have the option of filing under Chapter 11 or Chapter 13 and having your debts reduced substantially, however you will have to agree to a repayment plan.

I’ve Made the Decision to File for Bankruptcy. How Long Will it Take?

If you’ve decided that filing for Bankruptcy is the best course of action for you, then be prepared as there will be a fair amount of paperwork involved and also a short credit counseling course you must complete that takes about one hour and can be done online. Due to the sheer volume of this paperwork, the confusing legal terminology and the many intricacies involved in the process is why consulting with an attorney and having them assist you is highly recommended. In fact, if you are operating as some sort of business entity, then an attorney is actually required in order to file for Bankruptcy. In most instances however, you will be filing as an individual (this includes if you and your spouse are filing together as a couple). Once you get your paperwork together and the petition is filed, this will trigger an “automatic stay” and your creditors will immediately be prohibited from harassing you, any court proceedings, foreclosures and levies will be halted and you will be provided with the breathing room that you need while your case goes through the process. After a period of about 4 months, if all goes well, the debts that you listed in your petition will be discharged and you can move on with your life!

How Much Does it Cost to File for Bankruptcy?

There are a few factors that can affect the cost. Are you an individual filing, or some sort of business entity? Do you need to completely discharge as many debts as you possibly can, or are you still able to pay some of your bills but need a little more time and flexibility? As you can imagine, the more complicated the case, the more time that will be required and that can affect your cost. A simple Chapter 7 filing without any complications could be as low as $700, not including the court’s filing fee. This would even include an attorney being present with you for your required 341(a) meeting

Will I Lose Everything if I File for Chapter 7 Bankruptcy?

The truth is that in 95% of cases you will be able to keep all of your belongings. You are entitled to a number of exemptions when you file for Chapter 7 and those are all items that you will be able to keep. This includes your primary vehicle, personal belongings such as clothing, jewelry and home furnishings, retirement accounts, bank accounts, life insurance policies and any tools that you may use in your profession. Most importantly, you will be able to keep your primary residence and even a substantial amount of the equity that you may have built up in your home. If you do happen to have some assets that would not traditionally be exempt, we will do our very best to work with you and try to find an exemption that they may fall under.

Will Bankruptcy Wipe Out All of My Debts?

Filing for Chapter 7 Bankruptcy can eliminate most—if not all—of your debt, but there are some exceptions that you should be aware of. If you have any alimony or child support that is in arrears, that would not be subject to discharge and also any back taxes that you have cannot be discharged. In some extreme cases, certain student loans are able to be discharged, but typically Student Loans cannot be discharged in Bankruptcy. Any willful or malicious damages caused to another person or their property or any personal injuries inflicted upon another person while operating a vehicle under the influence are also ineligible debts. There are some other exceptions as well, but these are the most common and we can definitely look at your individual case and let you know what else may apply. The good news is that almost all of your consumer debt is probably eligible for discharge. Just make sure that you have all of your documentation in order as only the debts that you include in your Bankruptcy petition will be discharged.