It depends. Our firm focuses on Chapter 7 and Chapter 13 bankruptcies. These chapters are commonly filed by individuals with primarily consumer debts. There are eligibility requirements for each kind of bankruptcy and there are many reasons why one chapter may be more appropriate for your situation than the other. Therefore, it is important to discuss your options with an attorney prior to filing. An attorney should be able to review your information, discuss your options, answer your questions, and quote you a price so that you can make an informed decision about what will be in your best interest.
Student loans are generally considered to be nondischargeable in bankruptcy, which means that they are not eliminated and are still owed, plus any interest or fees that may have accrued during the bankruptcy, after the bankruptcy is over. There are limited circumstances in which courts have reduced or discharged a debtor’s student loans, but these typically require exceptional circumstances and involve significant and expensive litigation in addition to the bankruptcy filing itself.
Not necessarily. There are certain kinds of debts that are nondischargeable, including most taxes, fines, and penalties owed to governmental units, student loans, domestic support obligations, any debt that was incurred through fraud, debts that are reaffirmed in Chapter 7, debts that are maintained and cured in Chapter 13, and debts that are not listed in your bankruptcy paperwork. Bankruptcy will typically discharge debts such as credit cards, medical bills, personal loans, secured debts (typically mortgages or auto loans) for which the property is given back to or taken back by the creditor.
The first thing that happens is that an “automatic stay” goes into effect which prevents most collection attempts from continuing - this includes foreclosures, garnishments, lawsuits, and repossessions. Your creditors will be notified of the bankruptcy as well. The next thing that happens is that you will have to attend a “meeting of creditors.” What happens after that depends on what kind of bankruptcy is filed. In Chapter 7, you will typically receive a discharge about 60 days after your meeting of creditors unless someone objects to you receiving a discharge. In Chapter 13, you will have to get your payment proposal confirmed (accepted) and complete your payments to the trustee before you receive a discharge.
While you can file without an attorney, we strongly recommend that you consult with an attorney who is familiar with the bankruptcy process before you file. A successful bankruptcy filing requires an understanding of the law and rules, including dischargeability of different kinds of debt, eligibility to be a debtor and receive a discharge, exemptions, and income. An attorney who is familiar with the bankruptcy code and rules should be able to advise you on the cost, effect, and requirements of filing for bankruptcy so that you can make an informed decision on whether that is something you should do and, if so, how to go about it.
A Chapter 13 bankruptcy is a payment plan in which you propose to pay some or all of your debts through a trustee. A requirement of Chapter 13 is that the debtor have regular income with which to make payments to a trustee. Chapter 13 bankruptcies are often filed when a debtor is ineligible for Chapter 7, can afford to pay some or all of their debts, or is trying to keep and pay for specific property (a home or vehicle for instance). Chapter 13 payment plans are usually for 3 to 5 years.
Bankruptcy will not necessarily ruin your credit, especially in the long run. A bankruptcy filing will be reported on your credit history for seven (7) to ten (10) years. Its impact, while generally negative, will depend on a few factors, including the time frame (short vs long term), how high or low your credit score was when you filed, whether you receive a discharge in your bankruptcy, and what you do to rebuild your credit after you receive your discharge.
In the short term, a bankruptcy filing will have a more negative impact on your credit than in the long term, especially after the bankruptcy is no longer reported on your credit history.
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