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What Filing for Bankruptcy Really Means

Bankruptcy filing

If your car were to break down, you’d take it to a mechanic for repairs. When a garment tears, you might discard it and get something new, if it can’t be easily fixed. When you file for bankruptcy, you’re asking for help and a chance to start over when it comes to your financial situation. Going bankrupt isn’t a reflection on you as a person. Instead, it can be an opportunity for you to reset your finances and to move beyond the pain debt has caused you.

You Owe More Than You Can Afford

The simplest way to explain what filing means is that you owe more than you can afford to pay back. Before you file, you need to complete a pre-filing counseling session that takes a close look at your personal situation. One of the goals of counseling is to see if filing is the most appropriate option for you. Depending on your financial circumstances, it could be that creating a debt management plan or working with a counselor is a better option for getting out of debt. During counseling, a person will work with you to create a budget and will use that budget to determine if you can eventually afford to pay off your debts or if bankruptcy is the only practical way out.

Your Creditors Can’t Come After You

Filing bankruptcy also means that creditors can no longer come after you about the debts you owe. After filing, an automatic stay goes into effect. Thanks to the stay, creditors can’t sue you for the debt you owe, nor can they attempt to take action against you. It means that you can’t be evicted from your home, your utilities can’t be turned off, and your creditors can’t garnish your wages.

A Chance to Start Over

You get a chance to start over after you file for bankruptcy. But, filing doesn’t mean that you simply get to walk away and get a clean slate. There is a process involved and the filing will have some impact on your credit and financial future.

Whether you file for chapter 7 or chapter 13, the bankruptcy will wipe out most of your debts. There are exceptions, such as student loan debt and child support payments, which stick around after the process is over and which you’ll still be responsible for paying. Filing doesn’t necessarily mean you’re able to simply walk away from your dischargeable debts, either. When you file Chapter 13, you’ll come up with a repayment plan and will need to make monthly payments for several years. Under Chapter 7, your trustee might sell some of your assets and use the proceeds from the sale to pay your creditors. But, once you’ve finished the repayment plan or liquidated any nonexempt assets, your eligible debts are discharged and you no longer have to worry about them.

Filing gives you a chance to rebuild your financial life. It means that you’ve taken a close look at your situation and have realized that bankruptcy is the only way out. It’s not a quick fix, but it can be what you need to start over and eliminate much of your debt.

If you are considering filing for bankruptcy, you can get a free consultation with a local bankruptcy attorney in your area

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Filed Under: Debt

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4 Responses to What Filing for Bankruptcy Really Means

  1. Nghi says:

    Hi Nghi I was considering filling for bankruptcy and so depressed , I owed the motor vehicle fines and money loans from money mart and stuffs . Does it make me to qualify to filled for bankruptcy to have a chance to start debt free, please get back to me please thanks

    • Tracy East says:

      Hi Nghi – Declaring bankruptcy may offer you an opportunity to have a clean slate and make changes moving forward, but it’s not a choice that is right for everyone. If you are considering it as an option and are on the fence, speaking to a bankruptcy attorney about your options can help you decide if you qualify. You can also take a pre-bankruptcy counseling course that will walk you through the process and help you make sense of your options.

  2. Arus Rajen says:

    Thanks for explaining the concept of bankruptcy. Automatic stay order is the best thing that I see in your post. Most of the bloggers do not mention this in the posts. I would like you to focus on chapter 7 or chapter 13 in your next posts as most of the people are not aware of this.

  3. My sister has been thinking about filing for bankruptcy because she just lost her job like her husband. She wants to make sure that they can take better care of the kids with the right care. She would really like to talk to a professional about how to file in order to get the effect she wants. Thanks for explaining how it can stop the creditors from taking action against her, and she can’t be evicted from her home.

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