What You Need To Know About Bankruptcy
Last year, 53 companies went bankrupt, according to BusinessOfBusiness.com. By September this year, that number was 80, and it’s sure to increase as the coronavirus pandemic persists.
The extent of bankruptcies among ordinary people remains to be seen, although this year’s rate is guaranteed to surpass last year as well.
No one ever thinks they will have to declare bankruptcy. But if the need arises, the feelings can be overwhelming and downright dispiriting.
If you find yourself in this situation, the first thing you should know is not to be too hard on yourself. The last year has been challenging, and many declared bankruptcy to get out from a mountain of debt.
These tips from the finance experts at US News My Money can help you understand a little more about bankruptcy.
What Is Bankruptcy?
Bankruptcy is a legal procedure you can take to lower or eliminate specific types of debt. It’s vital that you understand that not every debt — such as student loans and tax bills — can be written off. Additionally, not everyone may be eligible for bankruptcy.
There are various forms of bankruptcy, though the average person generally only has to understand two of them. These include:
- Chapter 7: This is referred to as liquidation. Chapter 7 eliminates most, but not always every, debt. It’s the most prevalent form of bankruptcy.
- Chapter 13: This form doesn’t forgive your debts but instead restructures them so you can repay them within a three- to five-year timeframe.
- Chapter 11: This type is reserved for corporations, LLCs, and partnerships
- Chapter 12: This kind of bankruptcy is typically employed by those who own a family farm or fisherman
- Chapter 15: This type is reserved for foreign nationals who need to declare bankruptcy while living in the US
- Chapter 9: A type of bankruptcy that only mayors of bankrupt cities, towns, or villages can file
Should You Declare Bankruptcy?
According to attorney Josh O’Brien, “It depends.”
O’Brien told US News My Money that while his answer may not be what you wanted to hear, the decision comes down to the individual. He added that while filing for bankruptcy comes down to how much debt you have, you should only file for it if “you’re in debt way over your head and have no reasonable expectation of being able to pay it off.”
How To File For Bankruptcy
If you know you need to declare bankruptcy, the next step is understanding how to move forward. As a legal procedure, things are bound to get complicated, so it’s in your best interest to hire a bankruptcy attorney — however, you are more than welcome to do it yourself.
O’Brien says the first step is to create a list of every asset you own, every amount you owe, and the addresses of every person or organization you must repay. “You do this under penalties of perjury, so don’t lie or omit anyone,” O’Brien cautioned. Of course, if you owe a family friend a few bucks, you don’t need to record it. But aside from that, your list should be exhaustive.
According to O’Brien, you will need to pay a $335 filing fee, but you can make four installments to pay it back. He adds that if you plan on filing without a lawyer, “go to the federal courthouse in the district where you live, talk to the bankruptcy court clerk, and ask for the forms and the procedures, which vary from one place to another.”
O’Brien and many other experts warn against declaring bankruptcy without an attorney because you may end up in a worse place than where you started. If you don’t know where to find one, visit the National Association of Consumer Bankruptcy website. Alternatively, low-income individuals can find more affordable — or potentially free — legal support through the Legal Services Corporation.
No one wants to file for bankruptcy, and it may feel like a low point in your life. But there’s nothing wrong with it — especially if you’ve done your best to manage your debt and practice fiscal responsibility. Bankruptcy is here for a reason, and it’s to help you get back on your feet so you can move on with your life free from the burden of debt.
- Williams, Geoff. “How to File for Bankruptcy.” U.S. News & World Report, U.S. News & World Report, 15 Oct. 2020, money.usnews.com/money/personal-finance/family-finance/articles/how-to-file-for-bankruptcy.