Financial matters can be difficult and complicated. With the ease that many people are able to get credit these days, the potential to overextend oneself financially is often very tempting.
Handing over a little plastic card or typing some numbers in online often doesn't feel like spending money. The result is often crippling debt that eats into a person's monthly budget to increasingly alarming amounts. There are tools to assist with debt assistance, but in the end, sometimes it can be too much for people. In those cases, the only choice is to declare bankruptcy.
What is bankruptcy? People hear bankruptcy and think that it's simply a case of being "broke". Bankruptcy is far more than that. It is a process. Bankruptcy is the process undertaken to purge or rearrange a person's debt to manageable levels. Bankruptcy doesn't meant a person loses everything, but it does usually mean that many of their assets will have to be sold or given up in order to pay off much of the debt they have accumulated. In some cases, bankruptcy results in all debts being wiped clean at the end of the process. In other cases, it can actually simply result in a longer term restructuring of paying off debt.
Types of bankruptcy. It's important to know that when it comes to personal bankruptcy, there are two different types that a person can deal with. These are referred to as Chapter 7 and Chapter 13 bankruptcy. Chapter 7 functions as a full discharge of the debts a person owns. This is what most people think of when they think of bankruptcy. During this time, a person has to surrender property and assets to pay off their debts as much as possible (there is some exemptions). Under this scenario, you simply have no way to pay off your debts, with insufficient income. Chapter 13 bankruptcy works as a partial method. It allows for debt restructuring or partial payments. Payments are reduced to a level that is manageable for the individual. All finances will be watched carefully. Chapter 13 aims to get creditors some of their money back (more than Chapter 7 would) and aims to treat all creditors fairly.
How long does it last? Each bankruptcy is different. The amount of money recovered can alter the length of time a person is in the bankruptcy period. During bankruptcy, it's very possible for wages to be garnished to ensure that creditors receive as much money as possible. This will only be done if income is at a level where it's deemed reasonable. The bankruptcy period is known to run for anywhere between 18 months and 7 years depending on the particulars of the case. In addition to actually going through bankruptcy, it will remain on a person's credit score between 7 and 10 years. This means that the credit score will be incredibly low during that time and make any type of credit applications unlikely to succeed.
Bankruptcy requirements. The requirements for declaring bankruptcy are slightly variable. Typically, if it appears unlikely that you can not pay off your debt within a 5 year span, then you are a candidate to file for bankruptcy. You need to compile all financial records and list them out. People need to undergo credit counselling for 6 months before they are able to file for bankruptcy. Specifically the requirements of bankruptcy will require that a person forfeits their assets aside from a few specific items. A car/vehicle can be kept, but the value needs to be below specific thresholds. If it's worth more than that, it needs to be sold and the maximum value can be kept and put towards another vehicle. An amount of personal assets within the home are also exempt to sales in bankruptcy. Unfortunately, homes are not exempt.
Bankruptcy lawyers. Many people choose to file for bankruptcy on their own, however, it's usually a good idea to get one to assist in the process. A bankruptcy lawyer should be obtained after the credit counselling process. They can assist with the actual filing of the papers. State laws vary, and federal law can be confusing. Not all debts can be discharged after all. A bankruptcy lawyer offers an experienced hand which will know how to handle the entire process. They ensure that all filing deadlines are reached. They will help during the creditor meeting. Not everyone can afford a bankruptcy lawyer. There are programs out there to try to assist people with free or discount legal services.