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Bankruptcy is a federal law which provides you protection from creditors while you seek a court order discharging (removing) you from the liability of your debts. Filing a bankruptcy petition empowers you with certain constitutional rights that shield you from creditors while giving you a chance to get a fresh start. For individuals and spouses, there are two main types of bankruptcy petitions, Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is usually a short process which takes a matter of months to get a discharge of your debts. Chapter 7 is intended to discharge unsecured debts (loans not backed by property) such as credit cards, signature loans, and medical bills. In exchange for the discharge of your debts, the bankruptcy trustee appointed to oversee your case may sell valuable assets which cannot be protected with a bankruptcy exemption. Applied correctly, bankruptcy exemptions should protect your primary assets such as your home, retirement accounts, and your vehicle(s). If the bankruptcy trustee finds such unprotected, valuable assets, she will then use proceeds of these unexempt assets to pay your unsecured creditors.
Chapter 13 bankruptcy is more similar to a payment plan that usually lasts 3-5 years. You get to keep all your property, and in exchange, you pay back some or all your debts through a repayment plan. Chapter 13 allows debtors to restructure debts while catching up on back taxes, missed mortgages, car loans, domestic support payments, and more.
Even if you are deep in debt, you are entitled to certain state and federal rights upon filing for bankruptcy. An example of one such right is the "automatic stay," which immediately stops creditors from harassing you or even contacting you regarding collecting debts or recovering your property. This federal protection allows bankruptcy debtors peace while seeking the discharge of their debts.
Another group of bankruptcy rights already mentioned are the state and federal exemptions. These exemptions protect the value of your assets from your creditors. Nearly all those who seek federal bankruptcy protection will end up filing either a Chapter 7 or Chapter 13 bankruptcy case and use these exemptions to protect the assets of their estate.
Both Chapter 7 and Chapter 13 have financial requirements that must be met, called the means test. If your household income is over a certain amount, in order to obtain your discharge of debts, you may be required to file Chapter 13 instead of Chapter 7. While any individual, married couple, or business entity can file for Chapter 7, Chapter 13 isn't available to businesses.
Bankruptcy court filing fees are currently $338 for Chapter 7 and $313 for Chapter 13, as of December 2020. If you decide to hire a bankruptcy lawyer, attorney fees typically range from $640 to $2,500 for a Chapter 7, depending on your case's complexity. Attorney fees are generally between $3,500 and $4,000 for a Chapter 13, but you can pay a portion or all of your attorney fees through your repayment plan.
In every case, about a month after you file, you are required to attend a hearing called the 341-meeting of creditors. Here, the trustee askes you questions on the record and gives a chance for any of your creditors to do the same. There is no judge involved and since Covid-19, all hearings have been telephonic.
In most cases, you don't go to court or appear in front of a judge. However, if the trustee or any of your creditors file motions or objections in bankruptcy court, you will typically have to attend a court hearing on the matter. As a result, whether you will have to go to court will depend on the individual circumstances of your case.
If you are struggling to pay back your debts, you may want to consider filing to give you peace of mind and a chance at a fresh start. However, whether bankruptcy is in your best interest often depends on your types of debt and the amount of property you own. The tipping point for most people is when debt collectors or creditors become a constant source of stress, collection lawsuits are filed, wages are garnished, or there is a threat of foreclosure or vehicle repossession. If you are facing any serious issues caused by unpaid debt, then it's a good idea to talk to a bankruptcy attorney to discuss your options.
Yes, you can file and seek the discharge by yourself. Keep in mind that if you have any joint debt, your spouse will still be liable for the debt.
A bankruptcy filing will stay on your record for 7 to 10 years. However, this does not mean that you cannot obtain credit, as it is up each creditor whether or not to give you credit. Many folks are able to obtain credit shortly after they receive a bankruptcy discharge.