It is very essential to understand the process of filing bankruptcy. “Bankruptcy is a life changing event. It can leave deep scars on your psyche and your credit report,” says a person who recently underwent the bankruptcy.

Do it on your Own or through Professional Help

Bankruptcy is a serious issue in terms of legal complications. It requires thorough understanding of the entire process to make well-informed choices. It is for you to decide whether you want to go about it on your own or take some professional help

The First Step

The first step for filing bankruptcy is to file the papers in a bankruptcy court. If you have decided to go about the process on your own, you need to have a lot of tolerance and assiduousness as it is a very complicated process.

Types of Bankruptcy

There are two types of bankruptcy namely Chapter 7 and Chapter 13. Chapter 7 allows the debtor to sell all his non-exempt property to clear off his debts. It is the best way to come out of a financial crisis and start life afresh. Chapter 13 is for the salaried who want to regularize their outstanding and lead a peaceful life.

Chapter 7

Chapter 7 is also called Liquidation. It is the most commonly used method for filing bankruptcy. Almost 65 per cent of the consumer filings are through liquidation or chapter 7. The process normally takes a few months after filing bankruptcy by an attorney. Once the paper is filed, a trustee is appointed to distribute the process of sale of non-exempt property. Debtors filing bankruptcy need not worry that all their assets may be lost. In most cases, this does not happen. Another advantage is that the debtor can continue to pay for his car loan or mortgage. The US Law allows you to retain all or some of your property.

Chapter 13

Chapter 13 on the other hand helps the debtor to pay off some or all the debts with better terms like lower or no interest rate added. Chapter 13 is a way of restructuring the debt and anyone who wants to use Chapter 13 should have a regular income. The maximum period for paying off the debts is restricted to 5 years. You can appoint an attorney to protect your interest else, the entire process will be done under the supervision of a court. A new interest free repayment plan is created and the payment starts off within 30 to 45 days.

The first step in Chapter 13 is to ensure that you really need to file bankruptcy in the first place. Then make sure you have a budget. Fill in the forms and devise methods of dealing with secured creditors. Ensure you attend all meetings with the creditors and court pleadings. Once repayments are completed, make sure that you get a discharge.

The advantage of Chapter 13 helps in securing full discharge which is not available with Chapter 7. The other advantage is that once the court approves the repayment plan, the creditors cannot disagree. Even then, the court allows the creditors to file an objection in the event the repayment plan is unfair.

Filing Bankruptcy may be difficult process, but it the best solution in totally unmanageable financial crisis.

How to file for bankruptcy