What Happens When You File for Bankruptcy?
Bankruptcy is a word that scares most people. For many individuals, bankruptcy is simply seen as the very last option. It’s something that destroys your financial reputation and essentially wipes out any credibility you have.
In fact, bankruptcy can give struggling people a second chance. Although it definitely has a number of consequences, declaring bankruptcy can give debt-ridden people a chance to start over. Here’s an overview of what you can expect from the bankruptcy process.
Determine if Bankruptcy Is the Right Option
Obviously, you don’t want to just jump into bankruptcy without knowing if you have other options available to you.
For some people, debt consolidation/settlement can be a great option that doesn’t have the kind of financial impact that bankruptcy does. This is especially useful if you have a few big debts (such as medical bills), rather than numerous small debts (like multiple credit card balances).
Checking your credit report for any incorrect entries is a good way to keep your credit score up. So, it’s easier to go through the process.
Consult a Credit Counseling Official
This isn’t just a useful step; it’s mandatory. To file for Chapter 7 bankruptcy, which is most widely used by low-income individuals, you must receive credit counseling within six months before you file. The United States Trustee’s Office publishes a list of approved counselors, and you must get counseling from one of them. Include your certificate of completion when you file, or the court will automatically dismiss your case.
File Your Paperwork
This is the point where many people realize that they need to hire a lawyer. It’s possible to make your way through the bankruptcy process without a lawyer. But it’s much more difficult and much more likely that you’ll make a mistake.
Although many bankruptcy lawyers are expensive (the average bankruptcy attorney costs between $1,000 and $2,500), you may be able to work out a payment plan or find an organization that can help for a reduced cost.
When shopping around for your bankruptcy lawyer, make sure you do your due diligence regarding their licenses and professional organizations. Be wary of anyone who claims to be able to help for an unrealistically low price, or that they can do it extra-fast.
Work with Your Trustee
Once you’ve filed your paperwork, the court will appoint a trustee to your case. This trustee will review your paperwork and liquidate any non-exempt assets to pay for administrative fees and to give partial payment to creditors. Your trustee is usually the person you’ll be dealing with the most, rather than directly with creditors or the court. The trustee will seize certain types of property to liquidate it.
Complete a Financial Management Course
Before you receive your discharge, you’re required to complete a course in personal financial management. Once you’ve filed your bankruptcy paperwork, it’s a good idea to find a financial management course as soon as possible. You have to file your certificate of completion within 60 days of your 341 hearing, which is the first time you meet with creditors.
Receive Your Discharge
About three to six months after you file your bankruptcy paperwork, you’ll receive your discharge paperwork through the mail. It will lay out all the information about what debts the court dismissed, what assets it liquidated, and what debts are ongoing. Your attorney and the trustee can also help you get this information while the procedure is happening. Just make sure you stay in contact with them.
Rebuild Your Credit
This is the hardest part, and the reason why filing for bankruptcy is such a difficult decision. It’s true that bankruptcy can be incredibly helpful for many people, but it also impacts your credit score tremendously. An individual with a normal credit score will usually lose between 130 and 150 points.
Even more importantly, a Chapter 7 bankruptcy will stay on your FICO report for 10 years. And debts settled through bankruptcy stay on your credit report for seven years. Those marks can severely impact your eligibility for loans and credit cards, making it difficult to make any large purchases in the decade after declaring bankruptcy.
It also carries a social stigma, as bankruptcy signals to many people that you’re bad at managing your money.
Stay Up-to-Date with a People Search Engine
If you’re going through bankruptcy, a public records site like PeopleFinders can help you stick with trustworthy people. After all, there are sure to be scammers looking to take advantage of you and your precarious financial situation. If you get a call from someone you don’t know, PeopleFinders’ reverse phone lookup may help you determine if official-sounding phone calls are really from scammers.
Even if you’re not going through a bankruptcy yourself, the same site can help you find out more about those who have. Bankruptcy filings become part of a person’s public records. So, if there’s someone you know who you think may have had to file for bankruptcy, you can try to locate that info via an online public records search.
Is It Okay to Declare Bankruptcy?
Although declaring bankruptcy can be incredibly helpful for many people drowning in debt, it’s not without some serious consequences. Bankruptcy may well be your best option, but you should keep your eyes open. And use PeopleFinders to stay safe throughout the bankruptcy process. Be cautious, and you can get a second financial chance.
Image attribution: designer491 – stock.adobe.comTags: Bankruptcy, Budget, Legal Issues, Scammer
Categorized in: People Data