Filing for bankruptcy if often considered to be a scary, headache inducing process. But it doesn’t have to be if you know all the facts. Here is everything you need to know about bankruptcy cases in order to stay educated about the process.
The types of bankruptcy
There are three main types of bankruptcy:
Chapter 7
Chapter 7 bankruptcy is when your debts are liquidated. This means that credit card debt, personal loans, and mortgage loans are all forgiven. In order to qualify for this method, one must pass a means test that ensures they have a certain amount of income. If they do not, they may have to sell non-exempt assets– think home, cars, boats, other expensive items– and the process will last between three to four months.
Chapter 11
This plan only applies to certain creditors, and it is a form of repayment bankruptcy.
Chapter 13
Another popular bankruptcy case, this choice is a reorganization method. You will be set up on a repayment plan, and you will have to pay back your creditors over time. No assets will be liquefied in the process, and this method typically takes a couple years to finalize.
Mediation
For some cases, you may have to go to bankruptcy mediation in order to figure out a solution. There are many different bankruptcy issues that can arise during this process, and your creditors may disagree with your lawyer’s proposition. This is meant to be a peaceful process, and if done correctly each person will walk away with what they wanted.
Your credit will suffer
It is important to note that your credit will suffer both during and after the bankruptcy process. It not only can ruin your credit, but it may also stay on your credit report for up to 10 years after your bankruptcy case is finalized.
It is public
The paperwork that you file during this process is put on public record and will be made available for everyone to see.
The court decides the process
When filing for bankruptcy, know that you have to strictly adhere to the court’s requests. They will dictate what creditor to pay back and in what order, and if you have to have to give up any assets to make that possible.