Bankruptcy is a legal process for settling outstanding debts that you can’t afford to repay. Most people who declare bankruptcy know little about the process before they have to go through it, and they frequently have some basic questions. The following are three common questions that you should know the answers to if you’re going through a bankruptcy now or in the near future.
1. Are There Different Kinds of Bankruptcy?
The different types of bankruptcies are referred to as different chapters, and there at least a half-dozen different chapters. Each one has its own stipulations and case uses, though, and only a few are used in the vast majority of personal bankruptcy cases. Unless you’re in a unique situation that involves a family farm or foreign assets, you’ll likely file a Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy is a form of liquidation that allows you limited protection for a home and other assets. Unless you own very little, most of your assets will likely be sold to pay off outstanding debts if you file this type of bankruptcy.
Chapter 13 bankruptcy is a restructuring of debt rather than a straightforward liquidation. Under this option, you usually get to keep more assets but normally have to pay your outstanding debts over a period of years.
2. Are All Outstanding Debts Eliminated During Bankruptcy?
While bankruptcy may eliminate many types of debts, some types of debts remain unchanged even if you go through this process.
Most unsecured debts discharged in either a Chapter 7 or a Chapter 13 bankruptcy. Unsecured debts are those loans that don’t have a backing, or collateral, against the debt. If you fail to repay these loans, the lender can’t seize any assets.
Student loans are an exception to the general rule for unsecured debts. Even though student loans don’t have a tangible asset associated with them, these loans will follow you through a Chapter 7 or a Chapter 13 bankruptcy.
Secured debts, which are debts against which there is a security, are treated differently. Loans for these debts are often renegotiated during a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, the asset that serves as collateral against a secured debt will be sold if it’s worth more than your allotted exemption. The sale price will then be used to pay back part of the loan.
Common secured debts that people rearrange or divest during bankruptcy include car loans and home mortgages.
3. Are There Costs Associated with Bankruptcy?
Even though bankruptcy is for people who are in difficult financial straits, filing a bankruptcy isn’t free. Filing for bankruptcy has several associated costs.
In court-related expenses, you can expect to pay a few hundred dollars in mandatory fees. These include a filing fee of $310 or $335 depending on what type of bankruptcy you file and a credit counseling or financial management course fee of $20 to $100. During most bankruptcy filings, you’ll have to take either a credit counseling or financial management course, and the classes vary in cost.
In addition to these fees, the attorney you hire for assistance with the process will also charge a fee. The total cost of filing a Chapter 7 bankruptcy with an attorney is usually between $1,500 and $3,000. A Chapter 13 filing with an attorney runs between $3,000 and $4,000 in total. The attorney you hire can detail their pricing at your initial consultation.
Despite the cost of a bankruptcy, going through this process is often much cheaper and more feasible than paying back tens or hundreds of thousands of dollars in debt. If you need to file bankruptcy, contact Siben & Siben LLP.