What You Need To Know About Bankruptcy was written for Playlouder by a contributing author. Please note that contributing opinions are that of the author. They are not always in strict alignment with my own opinions. –Joe
Filing for bankruptcy can be a way of wiping out your debts and getting a fresh start.
It's generally for people who are overwhelmed by their financial situation and are struggling to pay off debts and bills. However, it isn't always quick and easy.
Some Bankruptcy Basics
Not all debts can be solved through bankruptcy. It is crucial to consider both the upsides and the downsides of filing bankruptcy.
The upside is that you can get rid of unsecured debts like personal loans and credit cards.
Repossession, foreclosure, eviction, and wage garnishment will be halted until the case is settled. The downside is that it won't get rid of your mortgage, car loan, or tax debts right away.
You will need to sign up for credit counseling before you file bankruptcy. You will also need to decide which type of bankruptcy is best for you.
There's Chapter 7, known as liquidation. It takes less time and is more straightforward. There's also Chapter 13, for when you've fallen behind on car or house payments and want to catch up and still keep all of your property.
You will need to fill in two forms: Statement of affairs and debtors bankruptcy petition.
When you take your own bankruptcy petition and statement of affairs to the court, you will need to pay three fees, a court fee, a deposit, and a fee due to a solicitor.
The bankruptcy period can last up to one year or more. You will definitely want to work with an attorney and/or a CPA throughout the process.
The Bankruptcy Process
The Application
You can apply online, and in some cases, someone else may apply on your behalf.
You will receive a copy of the petition, and if you ask the court not to make you bankrupt, then there's a high chance you'll need to prove that you don't owe money, or you will need to pay the debt.
When the bankruptcy order is made
An official receiver generally handles the case in the early stages. They work for the insolvency service.
They will advise you on what you need to do and everything you need to know. An insolvency practitioner may be appointed to assist.
Your responsibilities when a bankruptcy order is made
You will need to give the official receiver a list of your assets and financial information.
You will need to inform your trustee if there is a rise in your income during the process and go to court. There are also some restrictions.
Interview with the official receiver
If your bankruptcy is approved, you'll then go through an interview process. You'll want to be organized and take all relevant documentation with you. You will be asked to provide a variety of information.
How your creditors are paid
A bankruptcy trustee will sell your assets, and creditors will need to submit claims. The money from your sold assets will be used to pay all the fees for the whole process.
What is the downside of filing for bankruptcy?
Declaring bankruptcy affects you in several ways. It will negatively impact your financial future for a period of time, and not all debts will be erased
Your assets may be sold. You may also need to sign an income payments agreement, meaning that you'll pay fixed monthly installments.
Usually, a bankruptcy will stay on your credit history for 7-10 years. During that time your credit score will remain low, which will inhibit you from either borrowing altogether or require you to borrow at much higher interest rates.
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