When a financial situation has become too large to handle, filing bankruptcy may be the only path a person can take to get a fresh start. A comprehensive guide on how to claim bankruptcy can be found on any bankruptcy court website. However, for many people filing with professional help gives them confidence the process is being carried out correctly.
Alternatives
Review alternatives to filing before doing so. In the U.S., some form of legitimate consumer debt counsel must be taken prior to making a claim. This measure is meant to provide an objective set of eyes to review finances and suggest opportunities for consolidating or eliminating debts. Counseling will also provide an education in debt and budget management.
What to File
There are two common methods of filing bankruptcy, chapter 7 and chapter 13. Chapter 7 is a complete elimination of all debts. Everything listed will be discharged in full, and listed on the individual’s credit report for up to ten years. Chapter 13 is a court-mandated and supervised payment agreement. Under chapter 13, collections attempts stop, but the debt is not discharged until the payment plan is completed.
Both types of filing remain on the credit report for years to come, but chapter 13 may have an advantage over chapter 7. Although credit scores will decline during the repayment period, the effect becomes less as bad accounts are taken off the report. The chapter 13 filing also allows the claimant to demonstrate a steady payment history.
The repayment plan is becoming more common due to the mean’s test claimants must pass to qualify for chapter 7. It can also backfire quickly. One missed payment and the court dismisses the bankruptcy. Dismissal results in a monumental red flag on credit reports and leaves the individual with all the remaining debt plus legal fees.
Professional Help
Filing for bankruptcy is possible without hiring a lawyer. However, the professional is fluent in the language of the courthouse. They probably have contacts there and know how to make the process happen with precision. Attorneys can practice law and offer advice, unlike paralegals. Make sure the firm hired has lawyers who are in direct contact with their clients.
Attorney costs should be clear to the client up front. Some charge a percentage of the debt owed while others require a flat fee before beginning to work. Once they go to work for their client, all phone calls or letters can be referred to the lawyer.
Debtors should be aware that not all debts will be discharged regardless of which chapter they file. The exemption list varies depending on the type of claim, but includes items such as taxes, child support, alimony, federal student loans and debts for malicious injury to persons and/or property. A legal professional can address any questions or concerns regarding the bankruptcy.
Once a person has learned how to claim bankruptcy, it is important they avoid getting into excessive debt in the future. Steps should be taken to learn proper debt and financial management skills. Bankruptcies take many years to erase from the official record, and no one wants to have to go through it again.
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