Circumstances that lead to bankruptcy can happen to the best of us. An unexpected loss of employment, illness, divorce, and overextended credit doesn’t just happen to “careless” people – they can happen to anyone. Most of the time, these events are simply beyond our control.
That, however, brings little comfort to those who are considering filing for bankruptcy. Going through a bankruptcy can be a traumatic experience for many people, especially if they have no idea what’s coming next. The shame and the uncertainty can certainly be more than many people can handle.
However, bankruptcy can be a good thing. The Founding Fathers prominently included bankruptcy in Article 1, Section 8, Clause 4 of the United States Constitution because they saw it as a necessary mechanism by which people can start their lives anew.
In the end, however, it remains your personal choice if you want to make use of bankruptcy as a means to get out of debt. If you do decide to file for bankruptcy, here’s a few things that will happen according to an experienced Phoenix bankruptcy lawyer.
Chapter 7 Bankruptcy
A Chapter 7 is perhaps the simplest type of bankruptcy there is. After your assets are sold off and the proceeds are distributed to your creditors, that’s pretty much it. The prospect of losing property that may have some importance to the debtor, however, can make this unattractive as a first recourse. It does, however, allow you to move on from debt very quickly.
What you can expect to happen:
- Almost all your assets are taken and sold to repay your creditors.
- The cash derived from your assets is distributed to creditors.
- A notice of discharge will be sent to you within a specified amount of time.
- The court may end your bankruptcy case at this point, but it can last a few more months or even years, depending on the case.
- The record of your bankruptcy will remains on your credit report for up to 10 years.
Chapter 13 Bankruptcy
If you own a business or a piece of property such as an ancestral home that has significant personal value to you, you may want to go with a Chapter 13 bankruptcy. However, it’s notable that successful payment rates can be uneven and a significant percentage of those who file for Chapter 13 find themselves forced to go with a Chapter 7.
What you can expect to happen:
- You will be allowed to keep a significant amount of property
- You’ll be allowed to pay off debts over a period of three to five years
- Creditors will be ordered by the court to stop calling you.
- You may be given offers a grace period, provided you can prove you have a steady income.
- Extant debts at the end of the given grace period are discharged.
- Similar to a Chapter 7, the court may or may not close your case at this time.
Chapter 11
This is quite similar to a Chapter 13 but reserved for businesses and other organizations.
What you can expect to happen:
- The company or organization will be reorganized to facilitate paying off existing debts
- The organization has to present a plan to pay off the debt to its creditors
- Businesses may also file for a Chapter 7 to simplify matters.
Bankruptcies are always hard, but they don’t need to be a totally unpleasant experience. It’s a mechanism that’s meant to protect you, as a debtor. Going through a bankruptcy and living with a bad credit report for ten years for a fresh start is infinitely better than a lifetime fending off creditors and stressing over the lack of control you have over your future. In most cases, we should not consider bankruptcy the end, but rather the start of a new beginning.
