Consumer bankruptcy is a legal proceeding in which an individual can obtain relief from their debts. Consumer bankruptcies include Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy requires an individual to sell their property to satisfy debts in lieu of making payments. A Chapter 13 bankruptcy allows an individual to keep some property but they must pay back their creditors over time.
What are the Consequences of Declaring Bankruptcy?
There are many consequences of declaring bankruptcy. It is a last resort for an individual or a business that is unable to satisfy their debts.
There are many pros and cons of filing for bankruptcy. One of the main advantages is that certain debts are discharged, which means cancelled or terminated.
This may be of great assistance to an individual who is in debt and needs some of that debt cancelled. This is one of the main consequences of a Chapter 7 discharge. It is important to note that not all types of debt can be discharged.
There are, however, also negative consequences to filing for bankruptcy. This may include long-term damage to an individual’s credit score and the inability to obtain credit for several years.
Declaring bankruptcy may also change the way an individual’s assets are analyzed in other types of legal proceedings. For example, a bankruptcy may alter the outcome of property division in a divorce case, or change beneficiary rights in an estate distribution claim.
Can I Discharge All of My Debts?
An individual usually cannot discharge all of their debts in a bankruptcy. Because of this, it is important for an individual to consult with an attorney to determine if bankruptcy is the right decision for their circumstances. Non-dischargeable debts may include:
- Child support;
- Spousal support;
- Student loans;
- Secured debts;
- Child support; and
- Any credit card charges made after the debtor files for bankruptcy.
What Property is Exempt?
A bankruptcy exemption allows the individual to keep certain property or assets after their bankruptcy is filed. These exemptions are defined by statute. Any property that is exempt cannot be sold or seized to satisfy the debts of the individual.
Any individual who files for Chapter 7 or Chapter 13 bankruptcy can file for bankruptcy exemptions. The exemption an individual can choose varies from state to state.
There are federally-created exemptions and state-created exemptions. Some states permit the individual to choose which exemptions they want to use and some states require the individual to use the state exemptions. However, the individual must pick one set of exemptions.
There are limits to the exemptions in a bankruptcy, which will be determined by the statute used. There are other factors that may affect the limit as well, which include being married, filing with the head of household status, or having a certain number of dependents.
In addition, senior citizens may have higher exemption limits on homestead, personal property, and other items in some states. Disability may also raise an individual’s exemption limits, especially for vehicles.
Although the exemptions vary by state, some common personal property exemptions include:
- Household goods;
- Grave sites or cemetery property;
- Military equipment;
- Books and religious texts;
- Pets and livestock; and
Some common monetary exemptions include:
- Disability benefits;
- Public benefits;
- Recovery from personal injury;
- Veteran’s benefits;
- Health or medical savings accounts;
- Some state licenses;
- Funeral contracts;
- Alimony; and
- Child support.
Both of these common exemption lists are not comprehensive and will vary by state and exemption statute chosen. It is best to consult with an attorney to determine the exemptions in an individual’s state.
How Do I Declare Bankruptcy?
In order for an individual to declare bankruptcy, they must first file a petition for bankruptcy. They will then be required to file a schedule of assets and a statement of financial affairs.
The schedule of assets lists all assets the individual owns. The statement of financial affairs describes what debts the individual owes and why they are filing for bankruptcy.
The schedule of assets and the statement of financial affairs must both be filed within 14 days after the petition for bankruptcy is filed. If the individual fails to file either of these documents on time, the case will be dismissed.
Because of this, it is highly recommended that the petition, schedule, and statement be filed all at the same time so there is no risk of having the case dismissed for that reason. Having an attorney on the case can also ensure all documents are filed on time.
What Happens After I Declare Bankruptcy?
After an individual files for bankruptcy, there are 3 things that will occur which set up the rest of the bankruptcy case. These include:
- An automatic stay;
- The appointment of a trustee; and
- A creditors meeting.
The court will issue an automatic stay. This order prohibits creditors from attempting to collect any debts from the individual on their own.
The court will also appoint a bankruptcy trustee to administer the debtor’s estate. The estate includes all assets the individual owns, which may include both property and money.
If the individual has filed for a Chapter 7 or Chapter 13, a creditor’s meeting, or 341 meeting, will be scheduled. The debtor must attend this meeting or run the risk having their case dismissed.
After the creditor’s meeting, the bankruptcy will proceed according to the type of bankruptcy the individual filed or the type that the court ordered. In a Chapter 7 bankruptcy, the individual’s property will be sold. However, in a Chapter 11 or Chapter 13 case a repayment plan will be negotiated.
What Are Some Tips to Consider Before Declaring Bankruptcy?
There are many issues to consider prior to filing for bankruptcy. An individual should be aware that declaring bankruptcy is not always negative.
In some cases, declaring bankruptcy may help the individual or business get a head start on rebuilding their finances. In many cases, individuals have no issues applying for new credit cards following their bankruptcies. For a business, declaring bankruptcy may serve to help preserve their business’ name and reputation.
When an individual is declaring bankruptcy, they should consider the fact that many other areas of their life may be affected. This may include:
- Tax consequences;
- Estate considerations;
- Employment matters; and
- Family law issues, such as spousal support.
It is important to note that there are many different types of bankruptcy filings. They may vary depending on whether the filer is an individual, a business, or another type of legal entity.
For example a business usually files under Chapter 11 or Chapter 13, which allows them to restructure their financial plans over time. Individuals, however, typically file under Chapter 7, which allows for a larger amount of debt discharge.
Do I Need a Lawyer for Help When Declaring Bankruptcy?
It is extremely important to have the assistance of an experienced bankruptcy lawyer when declaring bankruptcy. As noted above, the process is very technical and the failure to file any document may cause your entire case to be dismissed.
Your lawyer can review your situation and help you determine which type of bankruptcy is appropriate for you. Your lawyer will help you fill out all paperwork accurately and completely, help you file the paperwork, and represent you during any court proceedings. Having an attorney can mean the difference between a successful and an unsuccessful bankruptcy.