It doesn’t matter whether you file for bankruptcy “pro se” (on your own, without a lawyer) or you get a guidance from a professional bankruptcy attorney, it’s always better to know all the facts, rules and potential threats to avoid unexpected and unwanted consequences. Here are the TOP-15 facts everyone who file for bankruptcy should be aware of.
1. The two most popular types of bankruptcies for individuals are Chapter 7 and Chapter 13. First one is called “straight bankruptcy “or liquidation bankruptcy where the person gives up his assets and (often) a home, while all their unsecured debts are written off instantly. Chapter 13 is a reorganization bankruptcy that allows keeping all assets while the period of paying off the debts is prolonged and the interest rate could be reduced to make it easier to pay the borrowed money back.
2. Not all types of debts can be discharged and this aspect becomes a disappointment for many who are not aware of it before starting to fill in the forms for bankruptcy. First of all, bankruptcy means that only your unsecured debts will be liquidated. If your home is collateral for the loan you cannot pay back, you can’t go bankrupt but instead, your home will be foreclosed to satisfy the claim of the lender.
Second: some types of debts cannot be eliminated under any circumstances. These debts are: alimonies, taxes, child support, student loans and some other types.
3. Many of those who fail to qualify for Chapter 7 automatically turn into Chapter 13 bankruptcy. The main criterion of eligibility is the income. If your monthly income is high enough to pay off at least a fraction of your debt (after paying your obligatory monthly expenses like rent, food, utility bills and Insurance), you will not qualify for liquidation bankruptcy.
4. Bankruptcy costs money. It’s not free! A good and experienced attorney will cost you around $1500-2000, plus court fees, so if your decision about bankruptcy is taken you better start saving money in advance by cutting your expenses on utility bills, etc.
5. If you are eligible you can file for bankruptcy under any Chapter, but in a case of failure, the next time you are allowed to file under the same Chapter again is in 6 months. In some cases, you can apply for bankruptcy not earlier than 8 months after your preceding attempt. If your bankruptcy was denied due to the intentional fraudulent information you stated in application forms, you may be restricted from filing for bankruptcy at all.
6. Yes, your credit history and your credit score will be ruined by your bankruptcy. Still, it’s not that bad as they try to make it look. You still will be able to get a loan but on less beneficial terms: for example online lenders do not pay that much attention to your credit score like banks do.
7. Before filing for bankruptcy it is reasonable to try a less radical option called consolidated loan. It unites all your different loans into one single debt to pay back gradually under much softer terms and lower interest rate. Often consolidation loan allows people avoid bankruptcy and keep their credit history undamaged.
8. If you will fail to get your bankruptcy approval, your fee that you’ve paid to the court is non-refundable. That is why if you have a serious debt case it is reasonable to hire an attorney to maximize your chances for success.
9. If you will fall into the temptation to hide certain assets or income sources from the court in order to qualify for Chapter 7 and your fraudulent information will be revealed, not only you will get an instant denial but will also be charged for the intentional lie. If you are aware of upcoming inheritance you are about to receive within a year and you don’t mention it in your application forms, you will also be accused of fraudulent actions and charged by the U.S. bankruptcy court. Moreover, you will be prohibited to file for bankruptcy for a long period of time.
10. Take into account that bankruptcy laws and rules of applying vary depending on the state. Make sure your knowledge about the procedure and forms to fill in is adjusted to the state you live in. You can find all needed and updated information on the U.S bankruptcy court website.
11. If any of your loans were received with the participation of a co-signer, it’s important to remember that in case your debt is forgiven, your cosigner will still have financial obligations towards the lender. The bankruptcy is related solely to you, while your cosigners are still financially responsible by their assets.
12. While filling in the form for applying for bankruptcy you should list all debts you have. You can’t pick those loans you want to get discharged and remain other loans unlisted. The same is fair for the property and assets you have – you can’t pick the property you are ready to give up and hide assets you want to keep intact. After filing for bankruptcy under Chapter 7 it will be up to Trustee what from your assets will be sold out first in favor of your creditors.
13. Bankruptcy is not a holy grail for all debts, moreover, chances are will find yourself in position of being bankrupt while still owning money to your lenders. If you stated any of your property as collateral for getting a loan, your creditor has a lien on your property and bankruptcy will not change it. Bankruptcy relates to unsecured debts only, while your creditor will have all rights to repossess your property in a case you will fail to pay the loan back.
14. The information about your bankruptcy will be available for the public during 10 following years. Any of your potential employers or lenders can get an access to this information that inevitably brings some complications in your life.
15. The average price for professional bankruptcy attorney services varies depending on the Chapter you apply under, the size of your debts and the state you are in. For instance, an average cost of applying under Chapter 7 is $500-$2500, while applying under Chapter 13 (reorganization bankruptcy) will cost you from $3000 to $6000.