If you have been struggling financially, the idea of filing for bankruptcy may have crossed your mind. However, a lot of components go into filing for bankruptcy. You can’t simply sign a few documents, get your debt relieved, and have a clean slate. This is why it is very helpful to consult a professional like an attorney at Leslie Legal Group. The article below will also help get your wheels turning. Give it a read and then give us a call at 760-350-5502.
Filing For Bankruptcy: 3 Most Important Things You Need To Know
Recently there have been several B2B companies filing for Chapter 11 bankruptcy protection including: FTK Worldwide Manufacturing (a jewelry wholesaler), Niche Marketing Group (distributor), and Contract Transport, LLC (freight shipping and trucking) just to name a few. You’ve probably seen even splashier news stories from B2C companies such as Toys R Us, The Limited, RadioShack, and Payless Shoesource. This is an equal-opportunity malady, impacting B2B and B2C companies, as well as individual entrepreneurs.
For any individual or business, the decision to file for bankruptcy isn’t one to be taken lightly. It’s important to know about the options that are on the table before proceeding, and what to expect once you initiate the process of filing. Here are the three most important things you need to know about filing for bankruptcy:
- There Are Several Types of Bankruptcy
Chapter 7 and Chapter 13 are the two basic options individuals have when filing for bankruptcy. Chapter 7 bankruptcy is a liquidation form of bankruptcy that can discharge all or most of your debts. While it is possible to keep some assets when going through this process, you may be required to liquidate nonexempt assets. Chapter 13 bankruptcy is a form of reorganization that involves creating a payment plan to pay back creditors over a period of time. The entire process can take between three and five years. This is an appropriate option for people with a regular income and the ability to make monthly payments.
Businesses can file Chapter 7 as well, but the entity will cease to exist at the end of the process. By far the most popular business bankruptcy heard in the news is Chapter 11. That’s because Chapter 11 is used by businesses to reorganize their debts and continue operating. Corporations, partnerships and limited liability companies are not able to use chapter 13. Individuals may also file under Chapter 11, but because the process is more complex, most personal bankruptcies are either Chapter 7 or Chapter 13.
- Bankruptcy Isn’t Free
What surprises many people when they look into filing for bankruptcy is that the process isn’t free. One of the biggest costs of filing for bankruptcy is hiring a lawyer, and most lawyers bill by the hour. This means that costs are likely to add up quickly if your particular case is complex. You may also be required to pay court costs and other fees. The cost for filing Chapter 13 bankruptcy is typically quite a bit higher than the cost for filing Chapter 7 bankruptcy because the process is stretched out over the course of several years.
There are also some long-term, non-monetary costs that you may not think of when you make the decision to file. If you are filing personally, or if you have personal guarantees with business creditors, your credit score will ultimately pay the biggest price of all. Bankruptcy carries the most negative impact you can have on your credit score. It will affect your ability to obtain loans or gain access to credit for up to a decade. This is something to consider if you plan to do something like a purchase a home, start a business or finance educational costs within the next 10 years. In addition, bankruptcy records are public.
- Bankruptcy Won’t Necessarily Make All Debts Go Away
Filing for bankruptcy can certainly be the right decision in some cases. However, the idea that all debts and obligations will simply vanish is a myth. Here’s a look at some of the debts that can’t be discharged when you file for bankruptcy:
- Student loans
- Child support
- Real estate liens
- Certain luxury items
You will also have to attend something called a meeting of creditors before completing the bankruptcy process. Creditors have one last opportunity to dispute the discharge of any debts that you owe them. You may still owe creditors money if they are able to win a dispute that is brought up during this meeting.
When in Doubt, Consult a Professional. How do you decide if filing for bankruptcy is the right decision for your particular set of circumstances? It can be very difficult to make a decision without first consulting with a lawyer or financial professional to see if this is the right move to make. Seeking out professional guidance can also help to ensure that you’ll take the right steps, complete the right forms and avoid doing anything that could disqualify you from getting the outcome you desire.
Life After Bankruptcy. Aside from the up to 10-year credit blemish, a bankruptcy can leave inaccurate information on your credit report. Certain actions can be taken by anyone hoping to fix their credit as fast as possible after discovering incorrect information reported by creditors. Under the Fair Credit Reporting Act, credit bureaus are legally required to verify disputed items.
May you never need any of this information. But if you do, try to be as educated and proactive as possible in order to get back on your feet and move forward financially.
Larry Myler: CEO By Monday, Inc., adjunct professor in the Rollins Center for Entrepreneurship & Technology at BYU, author of Indispensable By Monday.