You may have heard that filing bankruptcy is a difficult process. Or that bankruptcy carries some sort of social stigma. But these misguided beliefs couldn’t be further from the truth. In fact, bankruptcy is the favored form of debt relief for more than a million Americans each year. In fact, it is a right guaranteed by the US Constitution [Article 1, Section 8, Clause 4]. And people from all walks of life file for bankruptcy, from truck drivers to teachers to corporate executives.
How to File for Bankruptcy:
At the beginning of every bankruptcy case, the filer—also known as the petitioner—submits paperwork that includes a list of assets, debts, and preferred form of relief. The petitioner filers this paperwork in a U.S. Bankruptcy Court, a unique forum specifically designed to help consumers solve their debt troubles. Federal courts ensure the process is safe and fair, but they are also governed by a set of arcane rules. As a result, many filers call a bankruptcy attorney to help them navigate the debt relief process.
The Automatic Stay:
As soon as the petitioner files for bankruptcy, the automatic stay kicks into effect. This is a remarkably powerful weapon against aggressive creditors. In brief, the automatic stay stops collection lawsuits, halts foreclosure proceedings, and silences creditors. This tool gives filers room to breathe while they sort out their debt troubles.
Chapter 7 or Chapter 13?
Individual filers typically choose between two types of personal bankruptcy: Chapter 7 and Chapter 13. Your decision to opt for one over the other depends on your unique financial circumstances.
During Chapter 7 bankruptcy, filers may discharge some or all of their unsecured debt, including credit card bills, medical debt, utility bills, and personal loans. In exchange for the debt relief, the trustee may liquidate some of the filer’s property, but petitioners are often able to keep important assets, including homes, cars, and personal property. These protected assets, known as exemptions, vary from state to state. Before filing for Chapter 7, consumers must pass a Chapter 7 means test, which ensures that this form of bankruptcy is reserved for those whose incomes prevent them from paying off their debts.
Not everyone will qualify for Chapter 7. For those who make a bit more money, or would prefer to pay off their debts over an extended period of time, Chapter 13 bankruptcy may be the better option. In Chapter 13, petitioners consolidate their debts into a single repayment plan. Over the course of three to five years, filers make modest monthly payments to the trustee, who deals directly with the creditors, so filers can relax and focus on recovering their financial health. And the end of the payment period, if the filers have made consistent monthly payments, the bankruptcy court may discharge some or all of the remaining debts.