Bankruptcy: What to Expect?

If you are struggling with piles of credit card bills, it can be difficult not to grasp at a straw. Bankruptcy can look like a miracle escape from the burden of your debts. However, don't consider it as an easy solution of your financial problems. Bankruptcy can knock your credit score down into the lowest rankings. Potential lenders will consider you as a high risk. So learn more about bankruptcy before making a decision. Although individual experiences can differ depending on your local court regulations and state laws most bankruptcies procedures are similar.

Pre-bankruptcy Counseling

All debtors have to get credit counseling before they can file a bankruptcy case. It will help you understand whether you really need to declare bankruptcy or you can improve your financial situation with a repayment plan.

Bankruptcy Petition

This is a document in which a debtor declares bankruptcy and invokes the protection of the bankruptcy court. It includes a description and categorization of your current debts.

The petitions are made under Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 discharges individual debts; Chapter 13 lets people pay off their debt within a set period of time.

Automatic Stay

When the bankruptcy petition is filed, federal law imposes an automatic stay that prevents creditors from taking actions to collect debts. For example, if the creditor has begun judicial proceedings against the debtor, the lawsuit will be stopped by the bankruptcy filing.

Creditors' Meeting

Thirty- to 45-days after filing, the debtor must attend a meeting presided over by the assigned bankruptcy trustee. He or she will ask the debtor several standard questions, and then ask if there are any creditors present. Usually, most creditors will not be there, although some credit companies attend these meetings.

If nothing unforeseen happens at the creditors' meeting, the main part of the bankruptcy process is now over for the debtor.

Creditors who don't agree with any aspect of the debtor's bankruptcy petition are allowed to file an adversary proceeding. They request bankruptcy court to refuse discharging a particular debt.

Decide If Bankruptcy Is Right for You

Though the bankruptcy process may seem quite simple, its idea is far simpler than the reality. Bankruptcy is a serious life-changing even that can negatively affect your credit score. So before you make a decision, consider the following:

•   Make sure you are you eligible. You cannot file for Chapter 7 if you have enough income to repay your debts. Or you may not be eligible for Chapter 13 if your debts are too high or your income is too low.

•   Consider what will happen to your home. Bankruptcy won't discharge your obligations to pay your mortgage. If you have substantial equity in your home, you might lose it if you file for Chapter 7. If you file for Chapter 13, you can keep your home and pay off your mortgage through a repayment plan.

•   Will your credit cards be paid off? Bankruptcy can eliminate most part of credit card debts and unsecured loans. If you file for Chapter 13, you will need to pay off some part of your debts.

•   Do cosigners have to repay your debt? If a friend or relative cosigned your credit card agreement, Chapter 13 bankruptcy will protect your cosigner, but Chapter 7 will stick them with any debts you don't pay.

•   Consider your personal life. Bankruptcy can be very depressing and stressful experience because you have to disclose every detail of your financial life. Your coworkers, friends and other people may find out about your bankruptcy.

Bankruptcy is not an easy way out. It is always the last resort when it comes to dealing with your debts. In most cases, the situation can be prevented and even improved by simply altering your financial habits and getting a grip on your lifestyle.