Overwhelmed by debts with no way to pay them off? Bankruptcy could be an option. Bankruptcy is the legal process an individual goes through to have his/her debts forgiven.
There are two different types of bankruptcy petitions an individual may file:
A federal judge will order the liquidation of any assets that aren’t exempt (exempt assets could be a car, household furniture or job-related tools). Proceeds from the sale of those assets will be used to help pay down one’s outstanding debts. The balance will be discharged in bankruptcy.
This is also called a wage earners bankruptcy, as income is needed to repay a court determined portion of one’s outstanding debts. Repayment plans are structured to last between three and five years.
Not all debts can be forgiven by filing for bankruptcy protection. Examples of debts that won’t be forgiven are child support, alimony and taxes. There may be circumstances under which student loan debt could be forgiven. If considering bankruptcy, it is wise to seek the advice of a bankruptcy attorney who can guide you through the process.
Most FCAA credit counseling agencies are approved* by the Executive Office of the U.S. Trustee (EOUST, a division of the Department of Justice) to offer pre-bankruptcy filing credit counseling and post filing debtor education courses.
While a credit counseling agency can’t give legal advice, a certified credit counselor can and will review the consumer’s income and expenses and help create a workable budget. They will also explain various alternative options to bankruptcy.
Filing for bankruptcy protection is a decision that should be made only after much consideration. Bankruptcy is invasive. Every aspect of one’s financial life needs to be revealed – debts, income, assets, etc. A bankruptcy filing will hurt one’s credit score, with a filing remaining on the report for 10 years with a Chapter 7 and seven years with a Chapter 13.
A credit counselor can help the individual weigh the pros and cons, as well as explain alternatives – such as self-help, debt management and debt settlement.
Before filing for bankruptcy protection, a consumer must complete an approved pre-bankruptcy credit counseling course. Mandated by the 2005 Bankruptcy Abuse Protection and Consumer Protection Act, this credit counseling course must be taken 180 days before filing for bankruptcy. The course must be administered by an EOUST-approved credit counseling agency. A certificate of completion will be granted once the course has been completed and must be submitted with one’s bankruptcy petition.
After filing for bankruptcy but before receiving one’s discharge (a bankruptcy court order that releases the individual from his/her legal obligations to repay their debts), the consumer must complete a post filing debtor education course. This also needs to be completed through an EOUST-approved credit counseling agency.
It takes time and perseverance to rebuild your credit after a bankruptcy. Our credit counselors offer these tips:
*Approval does not endorse or assure the quality of a provider’s service.
