The entire world is struggling financially right now. Businesses, nations, and individual citizens are all feeling the economic stress of everything coming to such an abrupt halt due to coronavirus precautions. For those who were struggling with unemployment, wage garnishment, collection calls, lawsuits, foreclosures, or evictions—their struggles seem to have multiplied overnight. Because of the difficulty of this, many people are thinking about bankruptcy as an option that may be necessary for them.
The following will break down the steps involved in filing for bankruptcy as well as provide additional information that may be of use in your particular scenario. As with any online legal advice, it is important to remember that every case is going to be slightly different, and so you must speak to a counselor or attorney to fully understand how this information pertains to your situation.
Consider Alternatives to Bankruptcy
Bankruptcy is one of the first solutions that come to mind when someone is struggling with large debts that cannot realistically be repaid. The most common reason for American’s claiming bankruptcy is unexpected medical expenses. If you find yourself considering bankruptcy, it might be worth looking into the other options available to you, like debt consolidation or negotiating settlements.
Bankruptcy comes with a few consequences, including long-term damage to your credit score. This can damage your ability to borrow money in the future, increase the rates you are required to pay for insurance, and can affect certain employment opportunities. As well, the bankruptcy process involves the liquidation of your assets. The things you have worth money, such as your car, clothing, pensions, tools of your trade, and household goods, are sold by the court and the proceeds are used to partially repay your creditors.
It is important to note that there are alternatives to declaring bankruptcy. These can involve a court-approved plan to repay a part of your debt over a period of a few years (usually no more than five). This route can be a great choice for those who do not want to liquidate their assets, and who feel comfortable paying off a smaller portion of their debts.
How to File for Bankruptcy
Bankruptcy is a legal process, and as such, specific steps need to be followed in a particular order. If you fail to complete the appropriate processes, your case can be dismissed. Because of how strict the proceeding can be, many people find a bankruptcy attorney to be incredibly helpful. An attorney can also increase your chances of keeping your residence when the time for liquidation comes.
Attend a Credit Counselling Session
Typically, you will be required to attend a credit counseling session and be given a certificate which you can include with your bankruptcy petition. During the session, a counselor will likely review your personal situation and offer advice related to budgeting and debt management. They will also likely offer up alternatives to bankruptcy that might suit your situation. Make sure that the agency through which you attend counseling has been government-approved.
Submit a Bankruptcy Petition
Once your credit counseling session has been attended, you can submit a bankruptcy petition along with financial statements showing your income, debts, and assets. You will also have to complete and submit a means test form. This is a form that helps to determine whether your income is low enough for you to qualify for bankruptcy. Typically a fee is required for filing, but this can be waived if you can prove that you cannot afford the fee. All of these forms can be obtained from a bankruptcy court. Alternatively, if you hire a bankruptcy lawyer, they may be able to provide copies for you.
Creditors Meet With Your Trustees
Once your file is complete, the trustee assigned to your case will meet with your creditors to explain the situation. If partial repayment is going to occur, this will also be discussed. Your case will be decided by a bankruptcy judge, based on all the information that you have provided. If the court decides that you have attempted to hide any assets or commit any type of fraud, you might lose your case or face criminal prosecution. It is highly unlikely that you will need to appear in court before the judge, but in incredibly complicated cases, this may also be a requirement.
Before Your Debts are Discharged
You will need to attend a debtor education course where you will be advised on budgeting and money management. You will again be required to produce a certificate showing you have participated. Like with the credit counseling course, it is important to ensure that the course you attend is government-approved. Once this is done, and if the court decides in your favor, your debts will be discharged. When this happens, your creditor can no longer attempt to collect anything from you.
Student Loan Considerations
Student loans are treated differently by the bankruptcy code than other debts. It is commonly assumed that student loan debts cannot be discharged, but this is not always true. Typically you will need to prove undue hardship to have your student loans discharged. If undue hardship cannot be proven, you will still owe your student loan once the bankruptcy is completed. Because of the vague nature of the concept of undue hardship, many people who are seeking relief from their student loans as well will work with a bankruptcy attorney.
It is important to remember throughout this process that your financial standing is not an indication of who you are as a person. You do not need a particular financial circumstance to be worthy. You don’t need anything at all to validate your existence. You do not need to earn your place in the world. You were born and that is enough to ensure you deserve to live a full life. It is also important to keep in mind that who you are today is not who you were years ago. A fresh start is possible. Everyone deserves a second chance.