What is Bankruptcy?
The bankruptcy process is outlined by the U.S Bankruptcy Code and is overseen by the federal courts, where they are distinguished as Chapters of the Bankruptcy process and are applied according to qualifications that establish eligibility. With this, you will enjoy peace of mind while getting a fresh start financially. There are a variety of bankruptcy chapters according to your qualifications. You cannot just choose a particular bankruptcy process because you simply like or prefer it, for you must qualify for it. The two most common bankruptcy chapters are the Chapter 7 petition and the Chapter 13 petition. A bankruptcy petition’s filing is associated with your bankruptcy needs. Of course there are advantages of filing for bankruptcy, just as it has its disadvantages of bankruptcy - both of which you must give ample thought to prior to filing a bankruptcy petition, and Start New Financial will cover some of these in this article, as well as the difference between these two chapters of bankruptcy petitions.
Chapter 13 vs. Chapter 7
These are the two types of personal bankruptcy petition options available that are so common
- When someone mentions bankruptcy, what people usually think of is a Chapter 7, also known as liquidation bankruptcy. You must first pass a “means test” in order to qualify for the Chapter 7 bankruptcy process, even though there is no debt maximum or minimum to file for it. People with sizable assets or high incomes are excluded in this manner since Chapter 7 wasn’t meant for them. Chapter 13 is for those who are excluded from qualifying for the Chapter 7 bankruptcy process. You probably took an educated guess that the advantages of filing bankruptcy and the disadvantages of bankruptcy have some sort of variance between these two different chapters of bankruptcy and you are correct. We’ll get to it as we go along.
- Your non-exempt assets, such as your car, home, and investments will be appraised by a court-appointed trustee who will determine their market value, if you meet the income requirements to qualify for the Chapter 7 bankruptcy process. The majority of your financial obligations to your creditors are wiped out with the money from your assets that the court-appointed trustee sells off for you. This tends to be an advantage of filing bankruptcy, as most bankrupt folks tend to owe much more than what their assets are worth.
- Your qualified debt is cleared and no additional payments need to be made after approximately three to six months, which is generally what the entire Chapter 7 bankruptcy process takes. You can call that an advantage of filing bankruptcy and that is how a Chapter 7 Bankruptcy petition functions.
- The standard option when you have a steady income and make too much money to qualify for Chapter 7 is a Chapter 13 Bankruptcy process. You will file for Chapter 13, which is also called the wage earner’s bankruptcy. With a Chapter 13 bankruptcy petition, you restructure your debt to be repaid over a three-to-five year period, instead of having your debt discharged. For any bankruptcy petition or process, there is no debt minimum but there is a maximum limit: Your unsecured debt must not exceed $394,725 and your secured debt must not exceed $1,184,200. When filing for the Chapter 13 bankruptcy process, you may also include overdue mortgage payments on your repayment plan to avoid foreclosure, unlike the Chapter 7 bankruptcy process. Your income and the value of your non-exempt property, will determine the length of your plan and the amount you’ll have to repay. With what you currently earn, you’ll make monthly payments to settle as much of your unsecured debt as possible. The main benefit of sticking to the proposed plan is that you get to keep your valuable assets. Your qualified debts will be considered paid off once the payment plan is complete. More people feel that a Chapter 7 bankruptcy has more advantages of filing bankruptcy than the Chapter 13 bankruptcy petition.
You need to consider your ability to repay your debts and whether you have property that you wish to keep, when figuring out which type of bankruptcy process to file. Your assets will be liquidated when filing for the Chapter 7 bankruptcy process, and generally your debts will all be discharged. If you have a steady income and want to hold onto your assets, the Chapter 13 bankruptcy process will be your best option. Seek legal advice from a bankruptcy lawyer to determine which of these petitions/processes/options is right for you. For we do not offer legal advice at all. This is all part of what is bankruptcy.
The goal and biggest of advantages of filing bankruptcy is that it should give you a fresh start from unmanageable debt; this is often seen as an option of a last resort. This will allow you to repay your debt under different terms from your original agreements with your creditors; it is a legal process that could help clear away some or all of your financial obligations. If you qualify for a bankruptcy procedure, many consumer debts are dischargeable, which means that the debt could be forgiven or renegotiated. Those words “forgiven” or “renegotiated” are advantages of filing bankruptcy. It’s all part of what is bankruptcy. Debts that qualify for a bankruptcy process include:
- Personal loan and credit card debt
- Collection accounts debt
- Medical bills
- Utility bills
- Business debts
- Auto accident claims
The bankruptcy court will first review your case in detail once you file. Secondly, the bankruptcy court will assess all of your debts, liabilities, and assets to determine if you qualify for the bankruptcy process. Some of your non-exempt property, or assets that are included in your bankruptcy petition and can be sold, may be used as repayment towards your outstanding liabilities depending on the type of bankruptcy process you are eligible for and your amount of debt. This turns to a disadvantage of filing bankruptcy when you are forced to part ways with a cherished asset that’s a priceless, sentimental heirloom to you.
As mentioned, these are the two popular types of bankruptcy processes that consumers generally file for, each with its own advantages of filing for bankruptcy as well as their disadvantages of bankruptcy. Anyone can file a bankruptcy petition, but depending on your income, assets, and if you have filed a bankruptcy petition before, your options could vary. However, most tax debts, child support, and spousal support will still need to be paid regularly. Every different chapter of the bankruptcy process shares the common denominator in the disadvantages of bankruptcy category of having a terrible impact on your credit report. That’s all part of what is bankruptcy.
Consider the Advantages and Disadvantages of Filing Bankruptcy:
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Advantages of filing bankruptcy in a Chapter 7
Disadvantages of filing bankruptcy in a Chapter 7
Disadvantages of filing bankruptcy in a Chapter 7. The common denominator in the disadvantages of filing bankruptcy in any of the different chapters of bankruptcy is that they all create terrible, long-term damage to your credit. One of the first disadvantages of filing bankruptcy in a Chapter 7 is that, for those who find it more appealing and would prefer it over the other chapters, a Chapter 7 is difficult to qualify for. There are income requirements in order to be eligible to file a Chapter 7 bankruptcy petition. You can potentially lose property if you file for the Chapter 7 bankruptcy process and are stripped of the use of credit cards. Disadvantages of filing bankruptcy in a Chapter 7 include the fact that it is harder to prevent foreclosure when you file a Chapter 7 bankruptcy petition, and alimony, child support, student loans, restitution, some judgments, most government debt and most taxes are not dischargeable in the bankruptcy process. These are all disadvantages of filing bankruptcy in a Chapter 7, including that you continue to owe these debts if you file a petition under Chapter 7 bankruptcy, when you complete your bankruptcy petition case. This is all part of the disadvantages of filing bankruptcy in a Chapter 7 of what is bankruptcy.
Advantages of filing bankruptcy in a Chapter 13
Advantages of filing bankruptcy in a Chapter 13. The advantages of filing bankruptcy in a Chapter 13 commence with you being able to get started on rebuilding your credit sooner if you declare bankruptcy now. While the Chapter 7 bankruptcy process only allows you to file once every six years, the Chapter 13 bankruptcy process gives you the added advantage of filing bankruptcy where you can always get a Chapter 13 bankruptcy plan whenever you suffer another disaster before you're entitled to file for the Chapter 7 bankruptcy process.
Each filing will appear on your credit record but in a Chapter 13 you have the advantage of filing bankruptcy of repeatedly being permitted to seek the rescuing relief of filing a Chapter 13 bankruptcy petition.
That individual creditors can’t obligate you to pay them in full once you successfully complete a repayment plan is an advantage of filing bankruptcy under the Chapter 13 bankruptcy process.
The six-year bar doesn't apply to you if in good faith you obtained a Chapter 13 bankruptcy discharge after paying at least 70% of your unsecured debts.
That you get to keep the property you're making payments on while you're making payments under a Chapter 13 bankruptcy plan is another much appreciated advantage of filing bankruptcy in Chapter 13.
Some don’t quite consider it to be much of an advantage of filing bankruptcy, the fact that a Chapter 13 bankruptcy process is less complicated to explain to a future lender than repossessions, defaults, missed debt payments, and lawsuits, mostly because it does stay in your credit report for years.
Your debt payments may be able to be stretched out by you, from your property you can give up an item that you are making payments on, or the amounts of your payments can be reduced. Chapter 13 bankruptcy trustees may be flexible on the terms of your payments and you'll have more time to make your payments since it generally takes longer for you to pay off your debts. Again, depending on who you speak to, some can consider this to be an advantage of filing bankruptcy under chapter 13, while others might dare to consider it a disadvantage of filing bankruptcy.
Although it will be at a much higher interest rate, you may also be able to obtain new lines of credit within one to three years of filing a bankruptcy petition. Again, depending on who you ask, some might consider this to be an advantage of filing bankruptcy under chapter 13, while others can consider it a disadvantage of filing bankruptcy.
It is unfair to characterize as a “bad risk” someone who's taken a major step to solve their financial difficulties, but that is what people who file a bankruptcy petition are categorized as for the most part; however, there are lenders who specialize in lending to "bad risks".
No chapter of the bankruptcy processes can relieve you of your child support and alimony obligations, but at least a bankruptcy petition will alleviate many of your other financial obligations
A bankruptcy petition can only prevent your lenders from aggressive collection action, but it can’t rid you of your student loan debt.
Believe us you when we tell you that both trustees and judges in your bankruptcy petition case have heard far worse stories than yours - so don’t be embarrassed nor feel bad. Those things happen in life.
These harsh limitations against refiling for a bankruptcy process can be avoided by you simply with the observation of all court orders and court rules and not requesting the dismissal of your case when your creditor asks for relief from the stay. These limitations don't last forever even if they apply to you. You just can’t refile for six months. To avoid limiting your bankruptcy petition options in the future, it would be wise to consult an attorney.
If you don't owe money on the type of debts that survive the bankruptcy process, then the amount and number of debts that a bankruptcy court can relieve you from paying are potentially unlimited. This is all part of what is bankruptcy.
Disadvantages of filing bankruptcy in a Chapter 13
Disadvantages of filing bankruptcy in a Chapter 13. One of the disadvantages of filing bankruptcy in a Chapter 13 bankruptcy plan is that it can take up to five years for you to repay your debts.
Your debts must be paid out of what’s left after you pay for your essential necessities such as shelter, food, and medical care that are considered indisposable income. Ergo, that means that all of your extra cash is tied up during the entire repayment plan. This can be a disadvantage of filing bankruptcy to many.
Up to 10 years is how long a Chapter 13 bankruptcy can remain on your credit report. 10 years is a very long time, so this is considered one of the biggest disadvantages of filing bankruptcy.
All your credit cards will have to be closed.
If you don't already have one, having filed a bankruptcy petition will make it nearly impossible to get a mortgage.
If within the last six years you previously went through bankruptcy proceedings under Chapter 13 bankruptcy then you can't file for Chapter 7 bankruptcy.
It will be harder to declare Chapter 7 bankruptcy later if you declare under Chapter 13 bankruptcy now. These are all disadvantages of filing bankruptcy.
A bankruptcy petition won’t relieve you of your obligations to pay child support and/or alimony.
Your student loan debt cannot be wiped off by any bankruptcy process.
You are required to give a trustee or judge an explanation of how you got into your overwhelming debt situation.
You can't file for Chapter 13 bankruptcy if a previous Chapter 13 or Chapter 7 case was dismissed within the past 180 days because:
- After a creditor asked for relief from the automatic stay, you requested its dismissal OR
- You violated a court order
You may still be responsible for paying certain debts of yours, such as a mortgage lien, even after the completion of your bankruptcy proceedings. Well, there you have it; these are the disadvantages of filing bankruptcy under Chapter 13. This is part of what is bankruptcy.
How to File for Bankruptcy
There are some things to consider once you have made up your mind to file for bankruptcy, and the first things to consider should always be the disadvantages of filing bankruptcy.. The actual filing of a bankruptcy petition costs money, and even though you can file for bankruptcy on your own (pro se), it is not advisable. It costs money to hire a lawyer, but with their training, skills and experience, they will be in charge of filing all the paperwork and fighting for you, relieving you of this task.
The following is the process or steps required to file a bankruptcy petition. Whether you choose to file for bankruptcy on your own or hire a lawyer.
1. Assemble your financial information
The court-appointed trustee may request additional documentation to better understand or verify the amounts you claim. You must include all of your debts, expenses, assets, and income because of this. All your records must be kept easily available.
2. Undergo credit counseling
The bankruptcy process requires you to take a bankruptcy course from an approved credit counseling agency when you file a bankruptcy petition. It will often take just an hour or two for this type of counseling and it is frequently conducted over the phone or online. You will need to provide proof that you have received credit counseling when you file your bankruptcy petition, since the finding of an agency is left up to you.
You need to fill out the necessary bankruptcy petitions and submit them to your local bankruptcy court once you take the bankruptcy course. A notice saying that you have included their debt in your bankruptcy petition will be received by your creditors. An automatic stay will be placed to prohibit your creditors from making any further collection attempts after your bankruptcy petition has been accepted.
3. Attend the 341 hearing
The trustee will set up a meeting, or a 341 hearing, for your creditors and lenders. This will take place approximately three to six weeks after your filing. Even though your creditors and lenders are not required to attend, it is mandatory that you do attend. The creditors will have the opportunity to question you or the trustee during this meeting. At this point, you will then confirm whether you wish to move forward with the bankruptcy proceeding.
4. Address formal objections
Your creditors may object to a discharge of a particular debt based on when or how you took on the debt, as soon as they have had the chance to question you and review your repayment plan. Both sides will have the opportunity to respond to the objection once it is filed, and to present evidence as to why the debt should be, or should not be, discharged. Your bankruptcy petition may proceed if there are no further objections.
5. Repay your creditors
The first step of Chapter 7 bankruptcy is to liquidate your assets. The bankruptcy trustee will pay your creditors from the proceeds before the remainder of your debt will be discharged. Your repayment plan will be approved by the judge at the confirmation hearing of a Chapter 13 bankruptcy filing. Upon completion of the plan, the remainder of your qualified debt will be cleared.
6. Undergo post-bankruptcy credit counseling
You will need to attend post-bankruptcy credit counseling once you have had your 341 hearing (Chapter 7 bankruptcy) or are about to make your last debt repayment (Chapter 13 bankruptcy). Until you provide confirmation to the trustee that you have completed your post-bankruptcy counseling, the bankruptcy process cannot be finalized and your debts cannot be discharged. This is all part of what is bankruptcy and how to file for it.
Note: The length of time between bankruptcies depends on the type of bankruptcy in each case. You cannot successively declare bankruptcy within a short period of time.
Can I File for Bankruptcy on My Own?
To help them stay on track, many people choose to hire an attorney since the complex process of filing for bankruptcy requires a lot of paperwork. Keep in mind that the average cost for an attorney largely depends on the complexity of your bankruptcy case. The option of filing for bankruptcy on your own is yours, but people may fare better when they work with an attorney than those who don’t. You can top expertise and experience, ya know!
There is no guarantee that once you file for bankruptcy your debt will be cleared or that your petition will be approved. The discharge of certain debts can be prevented by the court, and your creditors can also raise objections. A discharge that has already been issued can be revoked by the court when there are reasons for the belief that it should not have been issued in the first place. This is why it is helpful to have a professional guide you through the bankruptcy process because that’s what is bankruptcy..
Bankruptcy Benefits & Risks
The decision to file a bankruptcy petition should be considered carefully, weighing not only the bankruptcy benefits but also the bankruptcy drawbacks. Bankruptcy is not the best option for every situation, even if some of your financial burdens could be lightened by it. There are major impacts to your credit as well as serious short-term and long-term financial implications. The main risks and benefits of bankruptcy are the following:
A primary benefit of filing for bankruptcy is that you’re granted an automatic stay. You may not be contacted by your debt collectors, lenders, and creditors for additional repayment, nor can they take other actions against you.
In a Chapter 13 bankruptcy petition, you may keep your assets as long as you stick to your repayment plan. You may also be allowed to hold on to some of your prized assets by being able to delay or stop a car repossession or a foreclosure.
You could have a chance to improve your finances and rebuild credit because you are left with a clean slate since debts are gone for good when they are written off. Some debts may be fully discharged as well.
Depending on which type of bankruptcy process you qualify for in your bankruptcy petition, your income, the equity in your assets and other factors, you may lose your home, car, and other property. You could lose valuable or prized assets.
The debts that may not be discharged include spousal support, child support, court orders, some taxes and debts incurred through fraud.
Even though you may qualify for new credit after filing a bankruptcy petition, new financing may be a challenge. You’ll likely see higher interest rates and fees. Making a big purchase, like a home, may take a few years before you can realistically consider it.
Bankruptcy processes are publicly reported and are of public record. The potential is there that your having filed a bankruptcy petition can be discovered by people you know. It’s all part of what is bankruptcy.
Other Debt Relief Options
There are other options such as debt settlement or debt consolidation. If you have so much debt and financial instability that you are considering going through a bankruptcy process, you will realize that most do-it-yourself debt solutions probably won’t work. You are given enough money to pay off multiple debts at the same time in a debt consolidation loan, and, for it to work ideally, the monthly payment you are left with is more manageable and the interest rate is lower. You will essentially be paying off multiple existing debts by taking out a new debt. It may seem illogical, but you could potentially get a lower interest rate, simplify your payments, and get ahead and out of debt faster with the help of the right debt consolidation loan.
When you have a solid plan to keep your debt in check, and you have steady cash flow to cover your payments of debts that are not excessive, that is when debt consolidation is a very good option. If you’re already struggling to make your monthly payments, taking out a new loan could put you in a deeper hole, unless it’s the ideal debt consolidation loan with a much lower monthly payment. Good credit is a must in order to qualify for a debt consolidation loan with good terms.
If your credit is too poor to qualify for a debt consolidation loan, you are offered a more affordable way to resolve your debts in debt settlement. You will get out of debt faster while saving money when you have the right debt settlement company like Start New Financial to negotiate the substantial reduction of your total debt with your creditors. By you simply calling us for your FREE consultation, Start New Financial will provide you more details about how debt settlement works.
If you have $7,500 or more in debt, are struggling to make your monthly payments, and are considering filing for bankruptcy, it might be worth your time to get a no-obligation debt evaluation from Start New Financial to see if you qualify for one of our debt relief programs which would much better serve you than a last resort bankruptcy. Debt settlement does affect your credit, but it’s much less of an impact than filing a bankruptcy petition. Debt relief such as debt consolidation and debt settlement beat bankruptcy by so much that it isn’t even close; there’s no comparison between the last resort that is a bankruptcy process.
Which Debt Solution Is Right for You?
Filing a bankruptcy petition is the right debt solution for some people, but it’s not the right solution for everyone. It is the point of no return because there is no turning back once your bankruptcy is discharged. It’s with reason that it is considered a last resort. It’s important to think past the immediate relief that a bankruptcy process could bring and weigh in all of your debt relief options to make sure you are choosing the best debt solution for both the short term and the long term. You cannot undo the decision, and the consequences will stay with you for such a long time that it’ll seem like an eternity. You’re better off if you qualify for other debt relief options such as debt consolidation, debt settlement, debt management, and credit counseling.
Now you understand perfectly well what is bankruptcy and can tell debt relief is the way to go because you are armed with the advantages of filing bankruptcy and the disadvantages of filing bankruptcy. You can always get help over the phone from a friendly Certified Debt Counselor at Start New Financial. Call us at (800) 320-9083 to get your free, no-obligation consultation and debt advice on all your debt questions and options. We are here for you to help free you. Start New Financial saves you from the clutches of bankruptcy!
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