What is Bankruptcy?

Bankruptcy is a legal procedure which can give people who cannot pay their bills a fresh start by discharging all or a portion of their unsecured debts.  It is an ideal option for those who owe a significant amount of unsecured debt but have few assets.  It can also be used as a weapon to stop collection efforts, property seizures, judgments and wage garnishments since an automatic stay goes into effect that prevents creditors and debt collectors from taking any further action against you.

Only the debt you owe at the moment your bankruptcy is filed is included in the bankruptcy.  This is a very important factor to consider before filing bankruptcy since you are only permitted to file bankruptcy once every six years.  For example, suppose your child is seriously ill and you have accumulated medical bills in excess of $100,000 that you simply cannot pay.  You want to file bankruptcy to have them discharged, but if your child is still sick, the costs of her treatments after you file will not be included in the bankruptcy.  You could have your bankruptcy discharged and still be in serious debt with no way to get rid of it for six years!   This would leave you open to wage garnishments, judgments, etc.

Your credit rating will be ruined.  The Fair Credit Reporting Act allows a bankruptcy notation to remain on our credit file for 10 years; however, you will not suffer for the entire ten year period.  Enough creditors will start to forgive you after 2 or 3 years so that you will be able to get credit on your own, albeit at a higher-than-average interest rate.  But for several years after filing, you will need a co-signor to get a loan, if you qualify for one at all.  In addition, even after your credit rating is restored, you will have to check the "yes" box next to the question "have you ever filed bankruptcy" on credit applications for the rest of your life.
Costs to File Bankruptcy

Surprisingly, a Chapter 7, no-asset bankruptcy can be done relatively cheaply since you can easily do-it-yourself.  The filing fees are several hundred dollars and can be paid in installments if one doesn't have the full amount at the time of filing.  The major savings comes in the form of not having to pay any attorney's fees.

More complex bankruptcies require you pay higher court fees and attorney's fees.  If you hire an attorney to advise you and complete the paperwork, her fees might range from a modest $300 for a simple Chapter 7 to $2,000 or more for a more complex bankruptcy or a Chapter 13 or Chapter 11 bankruptcy.  Attorneys fees vary tremendously from region to region; however, most attorneys allow clients to pay their fee in installments.
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