Bankruptcy: Definition, Process, Cost, and Consequences

File for Bankruptcy Bankruptcy: Definition, Process, Cost, and Consequences

How and Why to File for Bankruptcy

DoNotPay is here to help people file for bankruptcy when collectors are calling, one's found their checkbook will never balance, and learned that one will never be able to fulfill the principal let alone the interest of many loans. Financial health is tied to emotional well-being and outstanding, unplayable debts make the holder feel like they live with an invisible, overwhelming financial wound. In one's life, commercialism often contracts the inability of many to fulfill their basic needs, let alone thrive under a system that requires such debt as a prerequisite for participating in the US economy.

Many are tied to unforgiving debt and collateral obligations without one sense of the human behind the loans, and desperately need to file for bankruptcy. If you need to file, DoNotPay is here to help and promises to take an active part in the road to recovery. There are several choices available to those who wish to file for bankruptcy since the different chapters can be confusing without professional advice. Those encountering bankruptcy most commonly file for Chapter 7, Chapter 12, or Chapter 13. As the paperwork to gather these documents, courage to speak with collectors, and the process is confusing, DoNotPay recommends consulting a fellow person for legal help.

What Is Bankruptcy?

Bankruptcy is a financial state that happens in a capitalist society where an individual releases that their income is not enough to meet their financial obligations. By filing for bankruptcy, an individual is acknowledging that they are unable to resolve their debts and need to settle with the companies holding the debts. The agreements tend to reflect an exchange of assets or some type of repayment if it involves Chapter 12 or 13. 

The three main types of bankruptcy are:

Type Of Bankruptcy:What It Is:
Chapter 7This type of bankruptcy is for those who have low-income.
Chapter 12This category is for farmers and fishermen who need to file with specific provisions unique to their profession.
Chapter 13This is wage-earner bankruptcy and for those who typically try to settle the debts while it's documented that they are not low-income. It's primarily to reach a settlement with a company for less than the outstanding amount.
  • There are five chapters of bankruptcy, yet these are the most common.
  • A lawyer can advise whether your case has specifics that make it wiser to file for Chapter 7 or 13.

What Happens When I File For Bankruptcy?

When someone files for bankruptcy, they typically meet with a lawyer or file the requisite paperwork alone after finding the forms online. Each procedure has different outcomes, but the filing process will ask a borrower about their assets, income, and confirm outstanding balances with a creditor. Different Chapters take more time to process, such as Chapter 13 takes 3-5 years to resolve while Chapter 7 is finished within a few months. If the case is won, then the debtor either agrees to a settlement plan, surrenders certain assets, or the debt is simply discharged in Chapter 7 cases. 

When someone files for bankruptcy, they are beginning the court process and procedure to officially file and present their case to a judge in the applicable court. One has to file a list of their assets and liabilities and turn them into the local bankruptcy court. It is called an adverbial procedure. Then, a ruling is made on the case using means-testing, the data, and the borrower's ability or inability to repay debt.

What exactly is Chapter 7, Chapter 12, and Chapter 13 bankruptcy? 

These three categories have very specific requirements and the procedure to settle the debts varies depending on which one is appropriate.

Chapter 7 (Low Earnings Bankruptcy)

  • This chapter is for those who have low-income and that's based on comparing it to the average income in a state.
  • People who file Chapter 7 select this choice because they realize their income makes it impossible to repay the debts.
  • The adverbial procedure includes means-testing, which requires proof of financial hardship, such as a comparison of wages to the debt.
  • Some cases involve relinquishing assets like a car or other property.
  • The point of relinquishing assets is that it is applied to the repayment of debt.
  • Chapter 7 is a quick process where debts are resolved quickly and sometimes forgiven.

Chapter 12 (Farmer's Bankruptcy) 

  • This is basically the same as Chapter 13, but accounts for family businesses in farming or fishing.
  • This case is for debts involving $4,153,150 for farmers or $1,924,550 for commercial fishing businesses.
  • Typically, part of the earnings are applied to the outstanding debts.

Chapter 13 (Wage-Earner Bankruptcy) 

  • While all borrowers typically earn wages during bankruptcy cases, this one is for those that make high earnings yet cannot afford their bills.
  • The total amount of outstanding debt is $394,725 for unsecured debts and $1,184,200 for private loans that have securitization by a bank.
  • Chapter 13 involves the restructuring of debts where the original amount may be unplayable, but resettlement with better terms for the borrower is not.
  • Some chose Chapter 13 because it does not typically involve giving up unprotected assets.
  • The process lasts 3-5 years.
  • The money is assigned to a trustee who pays a creditor.
  • Bankruptcy protection typically only applies when the repayment plans are followed.

Should I Really File For Bankruptcy? 

There are several reasons to file for bankruptcy, but many people do not avail themselves of this service.

  1. Admitting that one cannot repay their debts and starting a bankruptcy case is the first step.
  2. By trying to solve one's financial issues with the courts, you can have allies against potential creditors.
  3. Not all borrowers have entered into solid loan agreements and some involved predatory lending.
  4. Not all borrowers are treated fairly by creditors and some fail to reach settlements.
  5. The stress of bankruptcy can take a toll on the borrower and, sometimes time only aggravates the problem.

How to File for Bankruptcy Using DoNotPay 

When it comes to filing for bankruptcy, bankruptcy courts should take notice that the individuals filing rarely even know which Chapter is pertinent to them. Many are intimidated from filing it in the first place and lack access to resources to file. DoNotPay can show you how to file without without the embarrassment and difficulty of finding a discreet lawyer. 

How to file for bankruptcy using DoNotPay:

If you want to file for bankruptcy but don't know where to start, DoNotPay has you covered in 5 easy steps:

  1. Search for File for Bankruptcy on DoNotPay. 
  2. Put together a list of your debts, expenses, and assets. If you need help accessing information like your credit report, DoNotPay can help you get your report. 
  3. Let DoNotPay walk you through your bankruptcy options and help you determine whether a Chapter 7, Chapter 12, or Chapter 13 bankruptcy is right for you.
  4. DoNotPay will then help find the best credit counseling course near you, which you need to complete before filing your bankruptcy forms. 
  5. Lastly, DoNotPay will gather all of the forms you need (including available fee waivers) and help you locate your nearest bankruptcy court. All you have to do is complete the required forms, prepare your filing fee, and file the application with your local court. 

And that's it! Once done, the court will give you:

  • Your bankruptcy case number
  • The name of your bankruptcy trustee
  • The date, time, and location of your meeting with your trustee

At this point, your case has been filed! Congrats! The automatic stay now protects you from all debt collectors. Your trustee will then contact you for further financial documents you will need to provide. Make sure to attend your meeting as well as complete the post-filing bankruptcy debtors course!

Have Other Questions About Bankruptcy?

As part of our Bankruptcy Product series, DoNotPay has built a variety of resources about how to file for bankruptcy, what happens when you begin it, how much it costs, and the types of bankruptcy. We delve into the differences between Chapter 7 and Chapter 13 in more detail. We also provide debt verification letters and 609 letters. Elsewhere, we discuss how long it remains on one's credit report and the downside of filing. These topics are intended to be educational and provide assistance to borrowers in need. 

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