Learn the Bankruptcy Basics
Bankruptcy is a last resort for people and businesses, including Gawker Media, the company that owns this site. Many companies, like United Airlines and General Motors, file for bankruptcy and continue business as usual. Individuals file for bankruptcy and often emerge in one piece, too. Bankruptcy is poorly understood, so let’s talk about how it affects your finances, or the finances of a company you follow.
If you’re considering bankruptcy, it’s important to understand what happens when you declare bankruptcy and how it will affect you in the future. We’re all about education here, and especially when you’re dealing with debt! You need to move forward with confidence, knowing what your options are, and why you chose the route you go for debt relief.
First off, what IS bankruptcy? We hear about the phrase a lot and people use it in other contexts outside of financial all the time. Bankruptcy is a situation where much of your debt is wiped clean. Many people think that it simply wipes away any debt you owed with no payment needed. That is definitely not the case, but it’s going to be different based on what type of bankruptcy you file for and how much you can pay toward your debt. There are many different types of bankruptcy, but the three most common types are laid out below:
Chapter 7 Bankruptcy Basics:
When someone files for Chapter 7, they will most likely have to liquidate many of their assets like cars or second homes to help pay off some of the debt. The exact laws vary by state and will also vary based on your financial situation. It’s extremely vital that you get a lawyer to help you through this situation so that you know what you have to do and what you don’t need to do!
Chapter 13 Bankruptcy Basics:
Chapter 13 bankruptcy is an option where you agree to pay off the debt within the next 3-5 years. This situation often allows you to keep your assets and when the timeframe is done, the remaining debts may be discharged. This option does require eligibility, which may vary by state. Your debt is also evaluated based on if it is secured debt or unsecured debt.
Chapter 11 Bankruptcy Basics
Chapter 11 bankruptcy often works similarly to Chapter 13, but it often is focused on businesses only. As an individual consumer, you may not deal with this type of bankruptcy, but you probably will hear it thrown around in conversations or the news, so it’s important to at least understand what it is. Chapter 11 typically focuses on reorganization and restructuring of a company that has to file for bankruptcy.
Who Files For Bankruptcy?
The common misconception with bankruptcy is that those who file it have been irresponsible with their money. The truth is that yes, there are some people who let their debt get out of control. More often than not, we see people needing to file for bankruptcy for things that popped up out of nowhere and they were not prepared. We’ve seen people file for bankruptcy after a major financial blow, lawsuit problem, or even unexpected illness. It’s important to realize that financial problems can happen for almost anyone and bankruptcy might be the best option for someone to deal with the major financial debt they find themselves with.
How Does Bankruptcy Affect You?
Bankruptcy isn’t a “get out of jail free” card when it comes to debt. Often, you will need to pay attorney fees (and we definitely recommend hiring an attorney to represent you in this!). You will also have to pay typically something toward the debt or at least liquidate assets to help work toward that debt. Bankruptcy also leaves a mark on your credit score, which can take years to go away. If you plan to buy a home, build a business, or have other large expenses where you need loans, you may find yourself struggling to get the loans you need. It’s important to realize that bankruptcy WILL affect you in some way or another.
That said, bankruptcy may or may not be the right solution for you as you look for options to manage your outstanding debt. That’s why we exist: to help you understand what your options are and help you walk through them to get to a place of debt freedom!