Filing For Bankruptcy- How Does It Work?

Filing For Bankruptcy- How Does It Work?

America is going through a crisis with personal debt. In the second quarter of 2014, the United States' total household debt was $11.63 trillion. The majority of that debt, $8.09 trillion, is held in mortgages, but Americans also have crippling debts of $669 billion in high-interest credit card debt and $1.12 trillion in student loans. It might be time to think about filing for bankruptcy when you receive more calls from debt collectors than from friends and family, and all of your correspondence is stamped with the words "Third and Final Notice." Nobody looks forward to filing for bankruptcy. No one has it in their long-term strategy. However, for those in serious financial trouble, filing for bankruptcy may be the "best worst" alternative.

You must submit documents with a United States Bankruptcy Court, comply with the court's filing deadlines, and fulfill other conditions imposed by both federal and state bankruptcy law in order to begin the legal process for settling your obligations. There are 90 different federal districts in the United States that each have their own bankruptcy court. Being in debt is not a crime, even if bankruptcy cases are handled by courts, and the person filing for bankruptcy is not "on trial." Applying for government help is more like filing for bankruptcy. The court's function is to decide how to pay your debts in the best possible way:

  • If you don't have a steady source of income, the court will sell part of your possessions to cover your debts.
  • The court will collaborate with your creditors to create a three- to five-year payment plan if you get a regular paycheck.
  • Any outstanding debt that the court finds you unable to repay is dismissed, permanently wiping it out of existence.

Living with runaway debt is highly stressful and can have a negative impact on a person's mental health as well as their relationships with their spouses and family. Bankruptcy filing is a solution, but it has a price. After declaring bankruptcy, it will remain on your credit report for seven to ten years, severely limiting your capacity to be approved for new loans to finance the purchase of a home, a car, or a business venture. Make sure bankruptcy is the best course of action for your financial circumstances before filing for bankruptcy. We'll go over your selections on the following page.

Do you qualify for bankruptcy?

Bankruptcy can be your only option if you are being harassed by creditors and cannot see a way to pay off your debt. However, there are frequently other solutions to your financial problems that you can try before filing for bankruptcy. Meeting with creditors to discuss a payment plan is one of the goals of filing for bankruptcy. However, filing for bankruptcy is not necessary to begin negotiating. Ask your creditors if you can reduce the minimum monthly payments they need. Check to see whether the lender may refinance at a cheaper interest rate if you are unable to make your mortgage payments.

Consider visiting with a nonprofit credit counseling organization if you need assistance negotiating with creditors. On its Credit Counseling and Debtor Information page, the Department of Justice keeps a list of reliable credit counselors. A credit counselor may be able to negotiate a settlement because they have experience dealing with creditors. However, there is a crucial concept to comprehend regarding negotiations with creditors. One benefit of filing for bankruptcy is that some or all of your debt will be dismissed, meaning you won't be required to repay it. Any agreement you reach with creditors outside of bankruptcy will probably call for repayment of the full amount.

The only other choice you have if your creditors won't negotiate is to auction off all of your possessions to pay off the debt, including your house, car, boat, jewelry, and furnishings. Once more, one advantage of filing for bankruptcy is that, in most circumstances, the court cannot seize your home or other personal property in order to pay your creditors. Even if you ultimately determine that filing for bankruptcy is the right course of action for you, you must first complete credit counseling in order to file your application. Your alternatives will be explained to you by the counselor, who will also assist in determining whether bankruptcy is your only option. Most states offer therapy over the phone and online.

In America, around 2,500 individuals and organizations file for bankruptcy every day. That amounted to over 1 million people in the past year who were so inundated with debt that they were prepared to risk a ten-year credit report blemish in return for a fresh start. Families who experience a financial crisis that results in a foreclosure or bankruptcy have my deepest sympathies. I'm glad to know that there are free legal aid organizations in locations across the nation where bankruptcy attorneys give low-income community members pro bono assistance. Lawyers have a poor reputation, yet I personally know several that devote a large amount of their free time to assisting people in navigating the legal system and regaining control of their life.