Bankruptcy FAQ

What is Bankruptcy?

Although the legal definition of bankruptcy varies with the type of bankruptcy being filed, a general definition of bankruptcy essentially boils down to an individual or group of individuals filing for legal and financial protections because of credit and debt problems. Although an individual can file for bankruptcy, it’s also possible for legal entities such as companies and corporations to file for similar protections.

The causes of filing for bankruptcy can also vary. The inability to pay for medical expenses, a mortgage or make other routine payments on debt are generally the reasons people file for bankruptcy. From a legal perspective, a bankruptcy can provide an individual or even a company with a “fresh start;” however, financial and credit issues can sometimes linger.

What are the potential consequences of filing for Bankruptcy?

There are both positive and negative consequences of filing for bankruptcy. The positive consequences are mostly legal, since they address an individual or business’ need to have some sort of protection from creditors seeking payment on debt. The negative consequences typically range from a damaged credit rating to more abstract consequences such as a damaged business reputation.

What does Bankruptcy protect me from?

Each type of bankruptcy comes with its own protections, but generally it may be wise to consider filing for bankruptcy if you have noticed some of the following problems:

• Wage Garnishment: Protection of your job wages will typically come with, for example, a declaration of Chapter 7 Bankruptcy.
• Unsecured Debt: Many credit card and medical bills fall under the umbrella of “unsecured debt” and much of this debt can be wiped out with a “fresh start” bankruptcy filing. (Note: “secured” debt usually refers to debt that is secured by a piece of property or collateral; in the event if lack of payment, these creditors may be able to claim that property. For example, a mortgage would be considered secured debt).
• Property Repossession: In the case of secured debt, repossession is sometimes unavoidable. However, some types of bankruptcy may allow for greater flexibility in paying off secured debt and therefore allow you to keep the property that secured the debt.

What are the common “chapters” of Bankruptcy?

Three of the most common ways to file bankruptcy are Chapter 7, Chapter 11 and Chapter 13.

Chapter 7 Bankruptcy, the most common type, generally applies best to individuals without a lot of assets to protect under bankruptcy. Because so much debt (usually unsecured) is wiped out with a declaration of Chapter 7 Bankruptcy, individuals who are really in dire circumstances financially will typically gravitate toward Chapter 7.

In Chapter 13 Bankruptcy, another common type filed by individuals (or “consumers”), there is still an aim at repaying your creditors so debt is not totally wiped out. However, the protections granted here may allow for more flexibility in repaying these debts. It is not quite the “fresh start” of Chapter 7, but can ultimately be less damaging to your future finances. Additionally, you will be able to keep many of your assets, though portions of income you generate in the coming years might go to your creditors.

Chapter 11 Bankruptcy best applies to businesses; however it can sometimes be used by individuals with considerable assets to protect. It is often used by corporations as a way of restructuring in financially difficult times.

What will I need to file for Bankruptcy?

It’s best to start generating a list of all of your assets and debts. You’ll also need to put a lot of thought into the decision, as you likely won’t be able to file bankruptcy again for many years and even then, to do so could do a lot of damage to your long-term credit prospects.

There is no “minimum” amount of debt required to file for bankruptcy. This is one of the reasons it’s important to pursue other options before filing for bankruptcy. There is a chance your debt problems can be solved through different means, such as directly contacting your creditors and arranging new payment plans.

How much do Bankruptcy laws vary from state to state?

Many of the bankruptcy laws that apply to individuals and corporations are actually federal laws. For this reason, there is not as much variance in state-to-state filings for bankruptcy as you might expect for other documents and written contracts. Even so, it pays to know how to go about filing for bankruptcy in the state you live in and understanding any potential local laws that might apply to you that don’t apply to people filing for bankruptcy elsewhere.

What kind of information should I keep track of when filing for Bankruptcy?

Generally, there are four measurable items you’ll want to keep track of:

• Assets: Anything that you own property-wise, as well as any income-generation property that you might own (such as rental property);
• Debts: Information about your mortgage(s), credit card debt, etc.;
• Monthly Income: Both wage and non-wage income should be included;
• Monthly Expenses: Be sure to include total expenses, not just expenses that you pay on debt that has accrued.

The more accurate a picture you have of your own financial situation, the better you’ll be able to judge whether or not bankruptcy is right for you. If you still decide to file for bankruptcy, you will need to have this information available.

What kinds of debts remain after filing for Bankruptcy?

It depends on the type of bankruptcy you file. But it’s important to remember that many debts cannot be extinguished by bankruptcy, including student loan and tax payment debts. Additionally, legal judgment debts will still exist even after bankruptcy has been filed.

What are the requirements for a Bankruptcy filing to be valid?

Once you’ve made the decision to file for bankruptcy, it’s important to give an accurate picture of your financial situation in your filing. The validity of the filing will be assumed once you’ve signed the filing and all of the information has been freely and accurately volunteered.

Bankruptcy

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  Bankruptcy Questionnaire which will assist an individual in organizing and recording the information necessary in order to file for bankruptcy. This questionnaire contains questions regarding assets, debts and monthly income and expenses.