When you hear the term "bankruptcy," you may feel fearful. You may think that filing for bankruptcy is a moral failure or it will ruin your credit forever. There are a lot of myths and misunderstandings about bankruptcy that induce fear and intimidation in people, but you do not need to be afraid.
In fact, declaring bankruptcy is a smart choice when you are in a financial crisis. Below is a basic guide to the bankruptcy process so you can feel more confident about filing.
Filing the paperwork
You will need to gather certain documents and submit them to the bankruptcy court to begin the process. The details you need to provide include lists of your assets, income, debt and expenditures. Get your tax returns and pay stubs ready.
Taking the means test
The next thing you will need to do is take a means test. This test will determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy. You must compare your average monthly income to the average monthly income in your state. If you have too much income to be eligible for Chapter 7, you may need to file for Chapter 13 instead.
Liquidating assets or repaying creditors
Chapter 7 involves selling your non-exempt property and splitting the money between your creditors. Keep in mind that certain secured debts are exempt from this process. After liquidating your property, the court will discharge your debts. However, under Chapter 13, there is no liquidation, and you will simply need to make monthly payments to your creditors for three to five years.
After the process is complete, you will be free of your debts and ready to start over. While your credit score will take a ding, you can start rebuilding your credit once you are free from crippling debts. There is no reason to feel shame or fear about bankruptcy. The process is not as scary as you think!