Bankruptcy #FinancialHelp #DebtRelief #Eli5Bankruptcy #FilingForBankruptcy
What Is Bankruptcy? 🤔
When you file for bankruptcy, it means you’re legally declaring that you cannot pay off your debts. 😔 It’s a process to help you get a fresh financial start by either erasing your debts or setting up a plan to repay them.
Types of Bankruptcy 📂
There are different types of bankruptcy, but the most common for individuals are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
- Also known as "liquidation" bankruptcy.
- You might have to sell some assets to pay off creditors.
- Most unsecured debts (like credit card debt) can be wiped out.
Chapter 13 Bankruptcy
- Known as "reorganization" bankruptcy.
- You keep your assets but must follow a repayment plan.
- You usually pay back a portion of your debts over 3-5 years.
Immediate Effects 📉
When you file for bankruptcy:
- Automatic Stay Kicks In: Creditors must stop all collection efforts.
- Court Involvement: A bankruptcy court will oversee your case.
- Paperwork: You’ll need to submit detailed financial information.
How It Affects You 💼
- Credit Score Drop: Your credit score will take a hit.
- Public Record: Bankruptcy filing is public, affecting your reputation.
- Financial Freedom: Get rid of pesky debt collectors and start fresh.
Can You Keep Your Stuff? 🏡🚗
- Depends on the type of bankruptcy.
- Essential assets like your house and car might be protected (varies by state and case).
Pros and Cons of Filing for Bankruptcy ⚖️
Pros
- Eliminate or reduce debts.
- Stop collection calls and lawsuits.
- A fresh start for your finances.
Cons
- Bad credit for 7-10 years.
- Loss of property (in Chapter 7).
- Public record of bankruptcy.
Alternatives to Bankruptcy 🛠️
- Debt Settlement: Negotiating with creditors to reduce what you owe.
- Debt Consolidation Loans: Combining debts into one loan with a lower interest rate.
- Credit Counseling: Professional advice to manage your debt.
Final Thoughts ✨
Filing for bankruptcy is a big decision and not a fun one. But it can be a lifeline if you’re drowning in debt. It gives you a legal way to either erase or manage overwhelming debt and start anew. Always consult with a financial advisor or attorney to understand your specific situation.
Got questions? Drop them in the comments! 👇
They take your stuff that you don’t need to survive, sell it, and give it to the people who you owe money to. Then you don’t owe them money anymore, whether or not the stuff you have sells for enough to cover your debt.
You work with an attorney to put together a list of what you own, how much you make at work, what your current expenses are like rent, or mortgage, utilities etc., what you owe and to who. You present this in a meeting with a bankruptcy trustee who interviews you and evaluates your situation. If you have any “liquid assets” ones that could be turned into cash the trustee can have those auctioned off to help pay your debts. Your creditors and collection agents are sent a notice that you have filed and they have to stop calling you. They contact the bankruptcy court to verify the debt. Your bank records are examined. If you paid any really large debts or sent money to uncle joe within the last 90 days the trustee can get those funds back to help pay creditors. The trustee can “discharge” (wipe away) unsecured debt like credit cards, medical debt, SOME utility bills… basically anything that’s not secured with an asset like a house or car, or isn’t child support or student loans. If you have extra cars or vehicles, more than you need to get to work, those may be sold off to pay creditors. If you owe significant back taxes, the trustee may set up a “plan” which involves garnishing your wages (up to 50% of your take home pay IIRC) for the next 3 to 5 years, where your employer pays a good chunk of each pay check to the bankruptcy court for distribution to your creditors. During this period your credit is crap b/c nobody can chase you down to collect an unpaid bill so you will not be able to open credit cards of any kind. Bills that have been discharged (wiped away) by the trustee become uncollectable. if any debt collector calls you, you tell them your bankruptcy case number and they will not call back. Now most people can keep their home and a car so they have a place to live and can get to work, but your life of over-spending and luxury are pretty much gone. After you emerge from bankruptcy (assuming you kept working, and finished the plan) you get a discharge notice. If you apply for a loan you will have to give the details and discharge notice to the lender. (They will see it on your credit report but keep your discharge notice in case they want proof you finished). Your credit score slowly returns to normal or at least better than it was when you were struggling to pay your debts before bankruptcy , and if you have half a brain you will be way more careful about budgeting and borrowing and stay out of debt b/c you can only file for bankruptcy every few years depending on the chapter (7,13 ..) and potentially other factors. Oh, and your lawyer gets paid out of the garnishment, that’s part of the plan, too, and lawyers aren’t cheap. Bankruptcies should be a last resort and they are not pleasant, but they can help you get on your feet again.
Ask John Oliver