When facing a financial catastrophe, bankruptcy can be a helpful and acceptable option for some. Consequently, there are important things to know before filing bankruptcy. ACCC is here to help consumers understand the bankruptcy process.
What To Know Before Filing Bankruptcy
Bankruptcy is a proceeding in a federal court in which an insolvent debtor’s assets are liquidated. Thereafter, the debtor is relieved of further liability. There are two types of bankruptcy. Chapter 7 deals with liquidation, while Chapter 13 deals with reorganization.
The decision about whether to file for bankruptcy can be incredibly difficult. You should be aware of all the alternatives available when facing severe financial trouble. It is important that consumers get advice about bankruptcy early and understand the process. This includes what it does and does not do. So what should you really know before filing bankruptcy?
Advantages of Bankruptcy
- One of the most important advantages of filing for bankruptcy is that you can obtain a fresh financial start.
- If you are eligible for Chapter 7 bankruptcy, most of your unsecured debts may be forgiven or discharged. A secured debt is one which the creditor is entitled to collect by seizing and selling certain assets if payments are missed, such as a home mortgage or car loan.
- You may be able to keep (that is, exempt) many of your assets, although state laws vary widely in defining which assets you may keep.
- Collection efforts must stop as soon as you file for bankruptcy under Chapter 7 or Chapter 13.
Disadvantages of Bankruptcy
- A bankruptcy can remain on your credit report for 7-10 years and can affect your future finances and ability to borrow funds.
- A bankruptcy may impede your chances of getting a mortgage or car loan for some time.
- Not all debt will be discharged. Examples of debt that cannot be discharged include child support, alimony, some student loans, divorce settlements, and some income taxes. You should check with an attorney on the specific categories of debt that will be allowed for discharge.
Bankruptcy is a process. Part of that process is undergoing pre- and post-bankruptcy counseling. This is also known as credit counseling for bankruptcy, which is meant to educate consumers on all of their options before moving forward. Once you’ve completed each counseling session, you will receive a certificate that is necessary to the next steps in your filing and approval of bankruptcy.
If you are seeking advice on filing bankruptcy or financial life after bankruptcy, speak with a certified counselor at ACCC today. Call 800-769-3571.