10 Things You Need to Know About Filing for Bankruptcy

Despite your best intentions, you may get overwhelmed with debt. Unexpected events like the loss of your job or a serious illness requiring hospitalization can leave you with large bills you can’t pay. If this happens to you, bankruptcy might be your best option. You need to know the facts about bankruptcy so that you can determine whether this option is right for you.

Bankruptcy Affects Your Credit
Although bankruptcy can give you the opportunity to start over financially, it does seriously affect your credit. Filing for bankruptcy stays on your credit for seven to ten years. However, you can begin to repair your credit even while your bankruptcy is still listed on your credit report.

You Need An Attorney To File For Bankruptcy
Most states allow you to file for bankruptcy without an attorney. However, this is risky because your case can be dismissed if you make a mistake while filing. Court clerks and other people involved in your bankruptcy can’t give you legal advice, so it’s best to hire an attorney.

You Can Only File For Bankruptcy Once Every Eight Years
There are strict limits on how often you can file for bankruptcy to stop people from abusing the system. Bankruptcy is meant to be an opportunity to start over, not a way to get out of paying your debts. So you can only file once every eight years to ensure you aren’t trying to use bankruptcy as a debt-management plan.

Not All Debts are Dischargeable
You can discharge most of your debts through bankruptcy, but some debts are not dischargeable. Ordinarily, you cannot discharge student loans, tax debts, alimony, child support or criminal penalties through bankruptcy.

You Have To Attend Credit Counseling
Credit counseling is mandatory. You must attend an approved credit counseling sessions within the six months prior to filing for bankruptcy. If you do not, your bankruptcy case will be dismissed. You also have to attend a financial management session after you have filed for bankruptcy to help you get your finances back on track.

You Cannot Stop Foreclosure Via Bankruptcy
Filing for bankruptcy is not a permanent solution to a foreclosure problem. When you file, you get an automatic stay, which means the bank can’t foreclose while the bankruptcy is being processed. However, most of the time you’ll have to reaffirm your mortgage and make arrangements to pay back arrears in order to stop foreclosure after filing for bankruptcy.

There Are Two Types Of Bankruptcy
Chapter 7 is meant for the lowest-income debtors. This type of bankruptcy involves liquidating most of your assets to repay your debts and discharging what cannot be repaid. Chapter 13 bankruptcy involves creating a structured repayment plan to repay debts over three to five years.

You Can Usually Keep Your Home
Some Chapter 7 debtors worry about losing their home when they liquidate assets. However, if you have less equity than federal or state exemption limits, you can keep your home. You should talk to an attorney before filing if you’re concerned about this issue because you can’t withdraw your bankruptcy if it turns out you don’t qualify for an exemption.

You Can’t Take Out Debts You Don’t Plan to Repay
Bankruptcy courts have strict rules about how long you have to wait before filing for bankruptcy. You can’t file for bankruptcy immediately after taking out a loan, and it’s illegal to take out debts with the intention of getting rid of them via bankruptcy.

You Need to Work With a Bankruptcy Trustee
Regardless of the type of bankruptcy you file, you’ll have to work with a bankruptcy trustee. The trustee’s job is to manage your assets and pay back your debts. He or she needs to know your financial circumstances. If you file for Chapter 13 bankruptcy, your trustee is in charge of your debts until the end of the repayment plan. You’ll have to get permission from him or her to take out new loans while the bankruptcy is open.

Author bio:

Katelyn Reid is a financial and retirement specialist who writes for MA Local Guide on a variety of financial planning topics.

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