Bankruptcy should be the last option if you are drowning in debt and you should do everything you can to avoid it. However, sometimes your finances become out of control and bankruptcy is all you can do. In these scenarios, it’s time to let out one last sigh and begin the filing process.
Chapter 7 bankruptcy- Liquidation: Your debt is wiped out but with one final cost, you must agree that those you are indebted to can take and sell some of your property to pay back your debt. However, you can keep certain properties protected under state law. Sometimes those protected properties include your home, your transportation, and even certain personal belongings.
Chapter 13 bankruptcy- Reorganization: This type of bankruptcy restructures your debt but only if you are a high-income earning individual (sometimes this option is available in certain circumstances.) You may keep all of your property, but you must pay creditors the value of any nonexempt assets as part of a 3-5-year payment plan under the agreement. This includes any additional discretionary income as determined by the guidelines set under Chapter 13.
Not everyone can file for Chapter 7. If your income is sufficient to fund the reorganization from Chapter 13, you won’t be allowed to utilize the prior option. You are also limited to using any form of bankruptcy for 8 years!
What Comes Next
After Declaring Bankruptcy and moving forward under Chapter 7 or Chapter 13, you will need to complete a Pre-filing Credit Counseling appointment as well as a Post-filing Debtor’s education. This is part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. They are to prevent individuals from taking advantage of the Bankruptcy process.
Pre-Filing Credit Counseling
If you need to file for a Chapter 7 or Chapter 13 bankruptcy, you must complete a Certified Pre-Filing Counseling Session with an approved Non-Profit counseling agency.
A Pre-Bankruptcy Credit Counseling Course will:
- Take place through a secured online application.
- Fulfill the Budget Briefing & Credit Counseling requirements.
- Include registration, a disclosure agreement, and an educational course
- Take about 1-2 hours to complete.
- Include a Personalized Financial Summary and a list of debt options to consider once the online course is completed.
Upon completion of the course, you must talk to a Certified Credit Counselor to review the information and findings and receive the Certificate of Completion.
Post-Filing Debtor Education
Under the same circumstances, after you have completed the Pre-filing Credit Counseling Course, you must complete a Post-filing Debtor Education course. It needs to be approved by the same standards of the previous course.
Your Post-Filing Debtor Education Course will:
- Take place through a secured online application
- Instruct you on important financial subjects ranging from Household Budgeting to Risk Management and Consumer protection.
- Last the required 2 hours as specified by the 2005 Bankruptcy Act.
- Give you helpful Tips and Suggestions designed to help you improve your financial situation.
When completed you will receive the Certificate of Debtor Education for you to deliver to your legal counsel within 3 business days.
Last thing About Bankruptcy
Bankruptcy is an option you will want to avoid. It is not worth the negative impacts. You should only consider it if you are out of options. If you are unsure about what you can do and are considering bankruptcy, contact a Certified Credit Counselor and seek financial advice.