What is Bankruptcy?
Bankruptcy filing is the legal process in which outstanding financial liabilities of an individual or an organization are discharged through debt relief.
This debt relief acts as a financial cushion for debtors who have failed to repay their debts. Filing for bankruptcy is a common phenomenon, contrary to a common misconception associated with it.
According to statistics, 149,077 people filed for bankruptcy in 2022 in the USA. Widespread misconceptions about declaring bankruptcy have made it an undesirable option.
However, it is an appropriate financial option, and companies and large-scale organizations often use the option of filing for bankruptcy to obtain debt relief.
Bankruptcy has different types – Chapter 13 bankruptcy and Chapter 7 bankruptcy. Each type of bankruptcy has its financial implications, and it is better to consult a Bankruptcy Lawyer first.
What are the Different Types of Bankruptcy?
Understanding the difference between various types of bankruptcies is the critical first step after you have decided to file for bankruptcy. Some alternate options are always available to people who have failed to repay their debt.
Many bankruptcy attorneys suggest that filing for bankruptcy should be used as a last option if there are other ways to resolve the issue. Debt consolidation, negotiation with the creditors, etc, are reasonable alternatives for the debtors.
However, in some cases, a person is left with no choice but to declare bankruptcy. It is pertinent to remember that bankruptcy has long-term implications on credit reports, and it makes borrowing challenging in the future. There are two types of bankruptcies.
Chapter 7 Bankruptcy
Straight bankruptcy, liquidation bankruptcy, or simply Chapter 7 bankruptcy is the type of bankruptcy in which the debtor’s assets are liquidated through auction, and the proceeds from the sales are utilized to pay off the creditors.
Chapter 7 bankruptcy remains for seven years on the credit reports. Assets are divided into exempted and non-exempted, and non-exempt assets that are not luxury items are not auctioned.
Chapter 13 Bankruptcy
Chapter 13 is a rehabilitation bankruptcy that allows the debtor to repay his debts through a debt repayment schedule determined by the bankruptcy court.
It is called the debt repayment plan and usually spans a 3 to 5 years installment plan for repayment of debts. The debt repayment plan is negotiated between a bankruptcy attorney and creditors.
After a successful negotiation between the parties on debt repayment settlement, the bankruptcy court issues a bankruptcy order. In Chapter 13 bankruptcy, your assets are not at risk of auction.
However, it stays on your credit reports for ten years, three years longer than Chapter 7 bankruptcy.
What is the Role of a Bankruptcy Lawyer?
A bankruptcy lawyer helps you navigate the process of bankruptcy. An initial consultation is usually free and is an essential step before filing for bankruptcy because declaring bankruptcy isn’t always the right decision for you.
Discuss the option of debt reconsolidation with the bankruptcy attorney during consultation, and be open about your financial situation. It is insightful for your bankruptcy lawyer to analyze which option suits you the best.
Furthermore, a bankruptcy lawyer fulfills the legal formalities such as paperwork, legal representation in the bankruptcy court, and other procedural formalities on your behalf.
It is the role of a bankruptcy attorney to help you get a fresh start and help you understand the implications of bankruptcy on your future.
In Chapter 7 bankruptcy, an experienced bankruptcy Chapter 7 lawyer is a prerequisite to ensure you don’t lose everything to the auction.
A minor error in a bankruptcy petition can occasion the sale of any beneficial or important asset you were not willing to forgo. Hiring an expert bankruptcy attorney helps you avoid such disastrous mishaps.
How Do I Find a Bankruptcy Lawyer?
A good bankruptcy lawyer for you is indefinitely one who possesses expertise in the type of bankruptcy you wish to file, be it Chapter 7 or Chapter 13 bankruptcy.
You can begin your search for a bankruptcy attorney who matches your case’s requirements by contacting the American Bar Association or the National Association for Consumer Bankruptcy Attorneys.
The American Bar Association has a list of reliable law firms specializing in bankruptcy cases. Moreover, the National Association for Consumer Bankruptcy Attorneys maintains directories of bankruptcy lawyers.
You can shortlist the potential candidates by looking into their years of experience, fees, success rate, and availability by contacting each of them personally. It is recommended to interview more than one bankruptcy attorney to gain different perspectives on how your case will be handled.
Alternatively, you can ask your friends, family, colleagues, or peer group for referrals. You can also search the internet for bankruptcy lawyers in the vicinity and arrange a free consultation to weigh your options.
How Do I Choose a Potential Bankruptcy Lawyer?
While interviewing the bankruptcy attorney, prepare a mental list of questions you should be asking them. Conduct some online research about the information you ought to ask the bankruptcy attorney that can make the hiring decision easier for you.
Don’t go cheap, especially for a Chapter 7 bankruptcy lawyer, because only an expert bankruptcy Chapter 7 lawyer would have the relevant experience to secure your most important assets.
These seasonal lawyers have reputable expertise in dealing with Chapter 7 bankruptcy, and they have strategies in place to ensure that you end up having nothing.
An expert bankruptcy lawyer knows what’s at stake, explains the financial implications after declaring bankruptcy, and also helps you how to make a fresh start.
Bottom Line
The path to bankruptcy is long, especially if it’s Chapter 7. If you want to reapply for a loan after your bankruptcy is discharged, the best course of action is to concentrate on improving your credit score.
Given that it takes time to improve your credit score, declaring bankruptcy is a lengthy financial commitment and must not be taken lightly. You can determine whether or not you should file for bankruptcy by carefully reevaluating your finances.
It is generally a good idea to discuss your financial goals with our bankruptcy lawyer before filing for bankruptcy.
