Understanding Bankruptcy: A Guide for the Average Joe

Going bankrupt can be a scary and confusing thing. Believe me, I’ve been there! When money gets tight and bills start piling up, it’s easy to feel overwhelmed and not know where to turn. Well, I wrote this article to try and break down bankruptcy in simple terms for regular folks like you and me.

What Exactly is Bankruptcy Anyway?

Bankruptcy is basically a legal way to get rid of debts you can’t pay and get a fresh start financially. The way it works is you file paperwork with the court saying you can’t pay what you owe, then the court makes deals with people and companies you owe money too so your debts either get reduced or go away completely. Pretty sweet deal huh?There’s a few different types of bankruptcy you can file – the main ones are Chapter 7 and Chapter 13. I’ll break those down for ya:

Chapter 7 Bankruptcy

  • This one is what most people think of when they hear “bankruptcy”
  • Liquidates all your assets except essentials like a car and work tools
  • The court sells your nonexempt assets and uses $ to pay creditors
  • Remaining debts usually discharged completely
  • Quick process, typically over in 4-6 months

Chapter 13 Bankruptcy

  • Don’t have to liquidate assets like Chapter 7
  • Instead, you agree to 3-5 year repayment plan approved by court
  • Good option if you have valuable assets you want to keep
  • Also can save your home from foreclosure while repaying some debt

So in a nutshell – Chapter 7 gets rid of your debts quickly while Chapter 13 lets you keep assets and slowly repay over time. Make sense?

Do I Qualify to File Bankruptcy?

Great question! There’s a few factors the court looks at to determine if you’re eligible:

  • Your Income – They basically want to see if you could repay debts instead through a Chapter 13 plan
  • Your Assets – Obviously the value of your property and belongings comes into play
  • Types of Debt – Some debts like student loans or tax debt generally aren’t discharged

Here’s a good rule of thumb – if your monthly debts are more than 40-50% of your income and you have little in assets, you likely qualify for Chapter 7 or 13.

How Much Does Filing Bankruptcy Cost?

I won’t sugarcoat it – filing bankruptcy isn’t cheap. Attorney fees average $1,500-$3,000 depending on complexity of case. There’s also court filing fees to consider:

  • Chapter 7 filing fee – $335
  • Chapter 13 filing fee – $310

Now I know what you’re thinking…damn that’s a lot of cash! But keep in mind paying attorney fees on credit cards or payment plans is definitely an option to explore.

Finding a Good Bankruptcy Lawyer

This is where stuff gets real folks. You need an experienced bankruptcy attorney in your corner to navigate all the paperwork, court dates, etc.Here’s tips for finding a good one:

  • Ask Around – Talk to friends, family, coworkers for referrals
  • Check Reviews – Look at Google, Facebook, Avvo ratings
  • Browse Forums – Reddit, Quora, legal Q&A sites are great resources!
  • Consultations – Schedule free consults with lawyers using Avvo or FindLaw

And remember – go with your gut feeling during consult! Do they seem to genuinely care and make you feel comfortable? That’s the one you want!

Common Bankruptcy Concerns Answered

I know you probably have a ton of questions about how this will impact your life. Here’s answers to some bankruptcy worries folks often have:

Will bankruptcy ruin my credit?

  • It definitely hurts in the short term – expect 100-300 point drop
  • The black mark stays on credit reports for 7-10 years
  • But! Rebuilding credit is possible over time

Can I keep my house if I file bankruptcy?

  • Yes, in many cases your home is protected
  • Depends factors like amount owed vs value of house
  • Talk to lawyer to create customized case strategy

What debts go away in bankruptcy?

  • Credit card bills – sayonara!
  • Medical bills – bye bye!
  • Personal loans – see ya!
  • Mortgages and car loans however tend to stick around

See, filing bankruptcy isn’t a magical cure-all, but it sure can help relieve some financial burdens so you can get back on your feet!