What happens When you File for Bankruptcy?

Hey there! So, filing for bankruptcy is kind of like hitting the financial reset button. It’s a legal process where you tell the world, “Hey, I can’t pay off my debts right now.”

Here’s the lowdown on what happens:

1. Choosing the Type: First things first, you gotta pick the type of bankruptcy that suits your situation. The most common types for individuals are Chapter 7 and Chapter 13.
   • Chapter 7: This is like the “clean slate” option. Your non-exempt assets (like fancy stuff) might get sold to pay off debts, but many debts could be wiped out.
   • Chapter 13: More like a “restructuring” plan. You work with the court to come up with a repayment plan over 3-5 years. You get to keep your stuff, but you’ll need to stick to the plan.
2. Filing the Petition: Time to get official. You’ll fill out some forms about your financial situation, debts, income, and expenses. It’s like a financial snapshot.
3. Automatic Stay: Once you file, something cool happens. It’s called an “automatic stay.” Basically, it’s a legal forcefield that stops creditors from bothering you with collection calls, lawsuits, or repossessions.
4. Meeting of Creditors: You’ll attend a meeting with your bankruptcy trustee. Don’t worry, it’s usually not as intimidating as it sounds. They’ll ask you some questions about your financial situation, and you gotta be honest.
5. Asset Liquidation or Repayment Plan: For Chapter 7, if you have assets that aren’t protected, they might get sold and the money goes toward paying off your debts. In Chapter 13, you’ll start following your repayment plan.
6. Financial Management Course: You’ll have to take a financial management course to brush up on money skills. It’s like a crash course in adulting.
7. Discharge or Completion: After all the nitty-gritty is done, you’ll either get a discharge (for Chapter 7) which means your qualifying debts are wiped out, or you’ll complete your repayment plan (for Chapter 13) and get back on the financial road.
8. Credit Impact: Now, here’s the kicker. Bankruptcy isn’t a magic wand. It stays on your credit report for a while, like a scar. It could make getting loans or credit a bit tougher for a bit.

MUST READ: What is a Receivership? – Types, Liquidation & Receivership Duration

Remember, bankruptcy isn’t a decision to take lightly. It’s a serious step with lasting effects. You might want to chat with a bankruptcy attorney to figure out if it’s the right move for you.