Bankruptcy describes a wide array of complicated legal processes designed to help individuals and businesses get a clean slate. For consumers, there are two types of bankruptcy: Chapter 7 and Chapter 13. These are named for the chapters of the Bankruptcy Code that govern the respective types of bankruptcy.
- Chapter 7 bankruptcies are liquidation bankruptcies, also known as "straight" bankruptcies, where certain types of an individual’s debts are discharged or liquidated under bankruptcy law. Most individuals with personal debts file bankruptcy under Chapter 7 of the Bankruptcy Code.
- Chapter 13 bankruptcies are reorganization bankruptcies, where the individual filing for bankruptcy sets up a repayment plan to resolve the debt.
What to Do during Bankruptcy:
- Keep track of financial documents – Documents that outline earnings, debts, and other assets will be essential while filing bankruptcy. Having these documents available will help move the process along.
- Prioritize payments – It sounds strange to pick and choose between payments, but the reality of bankruptcy is some things may be sacrificed. Therefore, if someone needs a vehicle to get to and from work, it would be in their best interest to make payments on that vehicle. However, it is worth noting that some property, such a vehicle or a home, may be exempt.
- Remain insured – Although insurance can be pricey, hospital bills or a lawsuit can be much more costly. Keeping car and health insurance should remain a priority.
- Tell the truth – It may be a no-brainer, but lying may qualify as a crime. Telling the truth is incredibly important.
What Not to Do during Bankruptcy:
- Acquire more debt – Using credit cards or taking payday loans may seems like a quick solution, but it can cause delays when filing bankruptcy.
- Fail to mention assets – When an asset isn’t mentioned, chances are not it will remain hidden from the court. To the contrary, it may be lost, and unnecessarily so. Additionally, mentioning an asset does not necessarily mean it will be surrendered. Assets include vehicles, homes, real property, and a long list of categories of personal property.
- Pay more than $600 on a debt – It may seem arbitrary, but paying more than $600 will qualify the debt as a preference.
- Lie – Again, always tell the truth.
What Factors Disqualify Me from Filing Bankruptcy?
There are restrictions on who can file for bankruptcy, so you should make sure you qualify for bankruptcy before you attempt to file for it. You may not file Chapter 7 bankruptcy if:
- You have previously obtained a successful Chapter 7 discharge of your debts within the last 6 years
- You have had an application for Chapter 7 dismissed within the last 180 days prior to your current filing
- You have defrauded creditors, such as submitting fraudulent information to creditors or concealing assets from them
- You have submitted fraudulent information to the bankruptcy court
- You have engaged in certain “red flag” activities that suggest you are abusing bankruptcy proceedings
These factors have been implemented through BAPCPA as a means of preventing consumers from abusing bankruptcy privileges.
How Can Bankruptcy Affect Me?
Filing for bankruptcy can have affects in many other areas of life. For instance, a bankruptcy filing can affect child support payments in many ways. This is true for both the party paying for child support and the party receiving the child support.
Should I Hire a Lawyer to Help Me with Bankruptcy Proceedings?
Hiring a lawyer is the more important thing someone facing bankruptcy can do. Bankruptcy is a stressful time, made more stressful by a complex set of legal rules. Above is a general outline as to how to handle bankruptcy, and if you are considering filing for bankruptcy, hire a bankruptcy lawyer immediately. A bankruptcy lawyer can help you navigate the process and tailor a plan specific to your needs.