Why Use Bankruptcy Attorneys?
It is possible to file a bankruptcy without legal help, but the process can be much longer, more complicated, and a lot riskier. There are lots of rules to follow in a bankruptcy filing, and a bankruptcy attorney can help you better understand the rules that affect you. Besides answering questions and explaining bankruptcy laws, a bankruptcy lawyer can help negotiate with creditors and prevent common mistakes that can lead to bigger problems in the long run. A bankruptcy attorney can also protect against creditor harassment, ensure that you’re not being abused, and give you tips on staying ahead financially after you are discharged.
How Can Bankruptcy Lawyers Help You?
Bankruptcy lawyers are your first line of defense against creditors. Once you’ve retained legal aid, creditors can only contact you through your bankruptcy lawyers, and they can no longer solicit payments. A Bankruptcy lawyer can also explain how bankruptcy works, what your rights are, and what your obligations are to the court and creditors. They can also help you through the means test, where your finances are assessed to see what kind of bankruptcy best suits you. Most importantly, bankruptcy lawyers give you the peace of mind of knowing you’re working with professionals who can help you come out on top.
Bankruptcy Basics
Bankruptcy is a legal status in which an individual or business is no longer able to pay off his debts. One can file for bankruptcy in order to protect himself from harassment by his creditors, and in many cases have part of his debts discharged. It also gives struggling borrowers a chance to reduce their losses and reorganize their finances. In some cases, one can be forced by his creditors to file for bankruptcy in order to curb their losses, an event known as involuntary bankruptcy.
The goal of a bankruptcy filing varies from one debtor to another, and according to the type of bankruptcy being filed. Some debtors can get a large part of their debts written off, while others can get it rearranged into a repayment plan. Companies can sell some of their assets to pay creditors or let a bankruptcy court take over. Bankruptcy types, laws, and proceedings are outlined in the Bankruptcy Code.
Types of Bankruptcy
Four main types of bankruptcy are described in the Bankruptcy Code: Chapter 7, Chapter 11, Chapter 12, and Chapter 13. Personal bankruptcies fall under Chapter 7 and Chapter 13. A Chapter 7 bankruptcy involves selling some of one’s assets to pay off creditors and get immediate discharge, while a Chapter 13 bankruptcy allows the creation of a repayment plan to pay off creditors.
Businesses can also file for Chapter 7 bankruptcy if their debt is within a certain limit. Otherwise, they can file for Chapter 11 or reorganization bankruptcy, wherein they get protection while they reorganize their debts to pay creditors, without having to close down operations. Chapter 12 bankruptcy works much like Chapter 13, but is designed specifically for farm and fishery businesses.
US Bankruptcy Laws
In the U.S., bankruptcy laws are laid out in Title 11 of the United States Code, known to most of us as the Bankruptcy Code. This code was updated in 2005 under the Bankruptcy Abuse Protection and Consumer Protection Act (BAPCPA), which was designed to make the system safer and more efficient for both debtors and creditors. The revised Code now governs all bankruptcy filings and proceedings in the country, both for consumers and businesses.
The Bankruptcy Code is divided into nine chapters. Many of these chapters describe certain bankruptcy types that can be filed, such as personal and corporate bankruptcy. They also set down rules for qualifying borrowers, limits on debt discharge, and what creditors can do during a bankruptcy filing. Bankruptcy laws tend to be strict, and one can face serious consequences when they are breached. A bankruptcy lawyer can help debtors better understand bankruptcy laws and how it affects their filing.
What Happens After Bankruptcy?
Bankruptcy will affect one’s credit report negatively, although in different degrees. Generally, the more money owed and the more debt is discharged, the greater the damage to one’s credit record. A credit score can drop by as little as 80 points or as much as 400. In most states, bankruptcies stay on public record for about 7 years.
Needless to say, one’s credit options will be severely limited after a bankruptcy filing. While taking out loans is still possible, interest rates may be higher since lenders are taking on more risk. However, there are several credit repair steps one can take to get their score back up, such as making payments on time and reestablishing a good credit history.