If you don’t really know much about the process of filing bankruptcy, it can seem a little enticing. You’re broke, and this magical court proceeding will get all the collectors off your back, right?
That’s not always the way things go, and you shouldn’t jump into bankruptcy without understanding the full scope of consequences. Start learning more now, and check out a brief overview of some of the specifics surrounding the legal implications of filing personal bankruptcy.
The different types of bankruptcy
In terms of personal bankruptcy, you really only need to know about two different types of bankruptcy. Chapter 7 and Chapter 13 bankruptcy are the main two types filed by the individual.
Chapter 7 bankruptcy is what most people think about when considering the repercussions of bankruptcy. Also known by the name of “straight bankruptcy,” Chapter 7 will require you to pair up with a court-appointed trustee and sell any viable assets. The proceeds are used to pay off a portion of your debt. The rest of the total is forgiven once your bankruptcy is discharged.
Chapter 13 bankruptcy will allow you to keep your “stuff” in return for you paying most or all of your debt. Your legal representation will negotiate a total repayment amount. You’ll have a monthly payment to whittle away the debt owed, but the interruption in your life will be a little less invasive.
When you need a lawyer
You don’t always need a lawyer to handle your bankruptcy case. You can file for yourself, but you may put yourself at unnecessary risk of losing things without a lawyer. It’s best to have someone who is knowledgeable about the situation on your side.
A few legal terms to understand
Just so you don’t find yourself in a situation where you don’t understand what is being said, check out a few definitions. Here are a few of the most common terms you’ll see when you file for bankruptcy.
- Bankruptcy trustee – A trustee is a court-appointed individual who is responsible for overseeing the repayment of your debt. Whether it be selling off your “stuff” or making sure you pay your monthly payments, your bankruptcy trustee is like the “principal.”
- Discharged bankruptcy – When your bankruptcy issues are complete and resolved, the court refers to your debt as discharged.
- Liquidation – This is when the trustee sells off all of your qualified assets to convert them into “liquid” funds.
- Means test – You have to prove that your broke before you’re allowed to qualify for bankruptcy. The means test is simply the process the court uses to determine whether or not you’re broke enough to file.
Debts that won’t go away with bankruptcy
There are some debts that simply cannot be discharged by filing bankruptcy. Check out this short list of a few non-negotiable debts.
- Student loans
- Alimony ordered by the court
- Child support payments
- Government fines or penalties
- Court fines and fees
- Taxes owed to the U.S. government
Go into bankruptcy without blinders, and continue educating yourself. The more you know, the better equipped you will be to handle the situation.