For some, bankruptcy is a scary word, but it shouldn’t be. Over time, many misconceptions about the process have spread. Consequently, many people would rather sink into debt for the rest of their lives than try to use bankruptcy to get out of it. However, the truth is that bankruptcy can be much more helpful than you might imagine.
Conversely, other people think that bankruptcy is a magical solution that instantly gets them out of debt. Of course, this is not the case. While bankruptcy is a beneficial legal solution, it may not solve all of your financial problems.
That being said, here are some things you didn’t know about bankruptcy that will help you decide if it is the right option to get rid of your debts and get a fresh financial start.
It’s way more common than you think.
Some ill-informed people think that filing for bankruptcy is an admission of defeat. Far from it, bankruptcy is a legal alternative that thousands of Americans use every year to get rid of most of their debts and start rebuilding their finances from scratch.
In 2020, about 540,000 people filed for bankruptcy in the United States. The majority of filings were Chapter 7 bankruptcy, with about 370,000 filings, followed by Chapter 13 bankruptcy, with over 150,000, Chapter 11 bankruptcy, with approximately 8,300, and finally Chapter 12 bankruptcy, with 560 filings.
There are many types of bankruptcy.
There are various types of bankruptcy for different financial conditions. For example, if you want to get rid of your debts quickly and are open to selling some of your assets to do so, you should consider filing for Chapter 7 bankruptcy. However, this option is not available to everyone. To qualify for Chapter 7, you will have to pass a means test. If you fail to qualify, you will have to look for other options.
One of those alternatives is Chapter 13 bankruptcy. In this case, you won’t have to sell your assets to get out of debt. Instead, you will design a three-to-five-year repayment plan with the help of your bankruptcy attorney. If you comply with the plan, your remaining debts will be discharged at the end of the process.
Chapter 7 and Chapter 13 bankruptcies are the most popular options, but they are not the only ones. For example, if you run a large business and are considering bankruptcy, you should look at Chapter 11 bankruptcy, also known as “business bankruptcy.”
Finally, there are some bankruptcy Chapters designed for specific situations. Chapter 9 bankruptcy allows certain public entities to reorganize their debts; Chapter 12 bankruptcy helps farmers and fishers rearrange their financial obligations; Chapter 15 bankruptcy is for individuals who filed for bankruptcy in another country but have assets in the United States.
It won’t wipe out all your debts.
Bankruptcy can help you get rid of most of your debts, but it won’t eliminate all of them. Certain types of debts cannot be eliminated through bankruptcy, even if you file for Chapter 7. Some of the un dischargeable debts include student loans, alimony, child support, and certain taxes, among others.
Also, keep in mind that secured debts may not be discharged either. For example, if you borrowed money to buy a car and filed for bankruptcy shortly after that, the debt may be discharged, but that does not mean you get to keep the vehicle you purchased. On the contrary, the car may be repossessed after your filing.
If you want to keep your secured assets, consider filing for Chapter 13 bankruptcy instead. In this type of bankruptcy, you will include your secured assets in the repayment plan.
You won’t lose all your assets.
A common misconception about bankruptcy is that you’ll have to sell all of your assets to get rid of your debts. However, although you may have to sell some of your assets in the process, you’ll get to keep your most essential possessions. In fact, it’s very likely that you won’t lose anything at all.
During your bankruptcy filing, you’ll get the opportunity to exempt or protect some of your assets. Your exempt assets will be unaffected by your filing, so you won’t have to sell them. Some of the most common bankruptcy exemptions include your home, car, clothes, furniture, tools of the trade, and many more. Essentially, everything you need to continue living a normal life.
Nevertheless, you should be aware that your non-exempt assets may be sold to pay off your creditors. If you own expensive jewelry, coin or stamp collections, costly musical instruments, lots of cars, or luxury items, you may have to sell them to get out of debt.
On the other hand, if you don’t own any assets that can be deemed non-exempt, your bankruptcy filing may qualify as a “no-asset case.” This means that you will get your debt discharge without selling any of your belongings.
Bankruptcy can be the key to future financial success
Declaring bankruptcy doesn’t mean you will never be financially successful. Chrysler, General Motors, Marvel Entertainment, and many other giant companies filed for bankruptcy and found success later down the road.
Bankruptcy can help you discharge your debts and rebuild your finances from the ground up. It may take some time, but you can reach your financial goals if you manage your finances properly and work resiliently and intelligently. Filing for bankruptcy will simply be the first step towards achieving them.
You don’t have to work with an attorney, but…
In theory, you are not required to work with an attorney to file for bankruptcy. However, doing so without the expertise of an experienced legal professional tends to be a big mistake.
Bankruptcy is a complicated process. If you are not familiar with it, getting the results you are looking for will be complicated. But, if you work with a bankruptcy lawyer, you will notice how the process becomes easy and manageable.
An experienced bankruptcy attorney, like KT Bankruptcy Lawyer, will help you every step of the way toward getting a fresh financial start. They will handle all the necessary paperwork, represent you in court, and advise you at all times.
Most bankruptcy attorneys near you offer free consultations. Don’t hesitate to call them if you have further questions about the process or want to get started as soon as possible.