What is the Downside of Filing for Bankruptcy?
Filing for bankruptcy may seem appealing to people with big debts. But there is a lot of false information out there about filing for bankruptcy. It may not be as easy or as great as it seems. There are many downsides.
Deciding if bankruptcy is right for you is only the first step in a long process. You'll also need to decide what type of bankruptcy you'll file for, and then there are further steps and paperwork to be completed. It can be overwhelming at a time in your life when you're probably already overwhelmed. DoNotPay can help with every step of the bankruptcy process if you decide bankruptcy is right for you.
What is Bankruptcy?
There are a lot of myths surrounding bankruptcy. According to Investopedia, bankruptcy is basically just when a person or company declares that they are unable to pay their debts.
Courts will evaluate a person or company's financial situation, and they may use assets to pay for outstanding debts. Here's what you need to know about bankruptcy:
- Bankruptcy will 'erase' your debts
- All bankruptcies are done in federal court, and controlled by federal law
- There's more than one type of bankruptcy
- Bankruptcy will free you from debt, but follow you for years on your credit report
Heavy debt may make bankruptcy attractive, but you'll need to think long and hard before deciding to file.
Why Filing for Bankruptcy May Be A Bad Idea
For those drowning in debt, relief via bankruptcy may seem like the perfect solution. But you could end up in a worse position after bankruptcy.
- Bankruptcy follows you
- Chapter 7 will appear on your credit report for 10 years
- Chapter 13 will appear on your credit report for 7 years
- Filing for bankruptcy may make getting a future loan difficult, or impossible. This includes a car loan, mortgage, or even a credit card
- You may lose assets. The court will use whatever it can to pay off your debt. Most homes are exempt, but you could lose other assets, including family heirlooms.
Filing for Bankruptcy On Your Own
There are many different types of bankruptcy, called chapters. The most common chapters are:
|Chapter 7||Chapter 7 is for individuals (and some businesses) with few to no assets. Chapter 7 will get rid of unsecured debt. That's typically things that don't require any collateral. Chapter 7 probably won't discharge your mortgage, but it will help you get out of credit card and medical debt.
People who file for chapter 7 will need to liquidate non-exempt assets. Your primary residence will be exempt, but any second homes, cash, or even expensive jewelry will be used to pay off the debt before it can be discharged.
|Chapter 11||Chapter 11 is mainly for businesses. It allows companies to reorganize their debts, with the hope of remaining in business. Debts aren't discharged through chapter 11, but instead are delayed. The court and the company will work together on a plan to increase profitability, and repay debts.|
|Chapter 13||With Chapter 13, bankruptcy filers do not have to liquidate any property. The court will work with you to come up with a repayment plan. Chapter 13 is for people who earn too much money for chapter 7.
Once you decide which chapter is right for you, you'll need to file. The filing itself is complicated and time-consuming. DoNotPay has a product that will not only help you determine which type to file for, but also do all the filing for you.
How to File for Bankruptcy the Easy Way
DoNotPay cannot help companies file for bankruptcy. But individuals can take advantage of the fast, easy, and automated service to determine which chapter to file for and send in all the documents to the court.
If you want to file for bankruptcy but don't know where to start, DoNotPay has you covered in 5 easy steps:
- Search for File for Bankruptcy on DoNotPay.
- 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.
- 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.
- DoNotPay will then help find the best credit counseling course near you, which you need to complete before filing your bankruptcy forms.
- 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!
DoNotPay takes the fear out of filing for bankruptcy. Filing may be a little scary, but it doesn't have to be difficult. File now with DoNotPay.