Filing for bankruptcy is a big decision - a decision that you’re likely making during one of the most stressful times of your life. We’ve prepared the following summary of frequently asked questions that should help you decide whether bankruptcy is right for you, but please understand that there is no substitute for consulting with an experienced bankruptcy attorney.I have a job and a steady income. Do I even qualify for bankruptcy?
One of the misconceptions that many people have is that bankruptcy is an option only for the unemployed and the destitute. This is not the case. While sudden unemployment prompts many people to file for bankruptcy, many people who file for bankruptcy have steady employment. We’ll discuss later how exactly you qualify for bankruptcy, but for now, it’s important to understand that bankruptcy is designed to protect people from becoming totally destitute.
How do I know if bankruptcy is the right option for me?
There is no black and white answer here, as everyone’s financial situation is different. However, it’s reasonable to consider filing for bankruptcy if you fall into one or more of the following scenarios:
- You have debts that you can’t pay, and you can’t keep up with your bills.
- You are facing legal actions from creditors trying to collect their debts - lawsuits, garnishments, or repossession actions.
- Your home is in danger of being foreclosed.
What happens when I file for bankruptcy?
When you file for bankruptcy, you are asking the bankruptcy court determine whether or not you should be relieved of your responsibility to pay some or all of your debts that you owed prior to the date you filed for bankruptcy. As part of this process, the bankruptcy court halts all efforts by creditors to collect these debts while the case is before the court - this is referred to as the “automatic stay.” The automatic stay is one of the principal benefits of bankruptcy, in that it gives people relief from the unrelenting pressure they are facing from creditors and stops any pending legal actions.
Are there different types of bankruptcy cases?
There are two main types of bankruptcy cases available to consumers:
- Chapter 7 bankruptcy: This is referred to as a “total liquidation.” Essentially, all of your assets will be sold or distributed by the court to your creditors in order to satisfy your debts. The process unfolds over several months, and once complete, you will no longer be legally obligated to pay those debts, even if those creditors were paid only a part of their claim or nothing at all. While this sounds extreme, Chapter 7 bankruptcy gives people the “fresh start” that they may need.
- Chapter 13 bankruptcy: Chapter 13 bankruptcy is essentially a court-administered payment plan to repay your debts. The payment plan can take up to five years and may pay your debts in their entirety or pay only a portion of what you owe. While the Chapter 13 plan is in effect, you are responsible for making payments into the court in order to be distributed to creditors. You will also be responsible for paying any debts that you incur or come due after the date you filed for bankruptcy. Chapter 13 bankruptcy is a good option for people looking to hold onto their assets such as their home or their car.
Which kind of bankruptcy should I file?
Chapter 7 and Chapter 13 meet different needs, but it’s also important to note that it’s more difficult to qualify for Chapter 7. In order to qualify for Chapter 7 bankruptcy, you need to meet the “means test” - a comparison of your disposable income against the median income for your area. If your disposable income is less than the median income, you qualify for Chapter 7 bankruptcy. If it is higher than the median income, you can still file for Chapter 13 bankruptcy.
What happens when my bankruptcy case is finished?
Once your bankruptcy case is finished, the court will enter what is referred to as the “bankruptcy discharge” - a legal order stating that you are no longer personally liable for the debts that were included in your bankruptcy case. Creditors who attempt to collect those debts are subject to being fined by the court. In essence, the bankruptcy discharge is the court order that gives you a brighter future.
Do I need an attorney to file for bankruptcy?
You are not legally required to hire an attorney when you file for bankruptcy, but most people do. Bankruptcy proceedings are very technical, and just filling out the forms correctly and providing the right documentation is very complicated. A simple mistake can result in your case being dismissed and can restrict your ability to refile.
How do I pay for an attorney when I’m considering filing for bankruptcy?
We understand your hesitation to hire an attorney when you’re facing severe financial difficulties. Attorneys are expensive! That said, any payments to your attorney will be approved by the bankruptcy court, so you can at least rest assured that you won’t be billed inappropriately.
We can’t speak for other law firms, but Kain & Scott does not require that you pay any legal fees up front, and we offer our clients easy monthly payments. We provide more detail concerning the legal fees and costs associated with both Chapter 7 and Chapter 13 bankruptcy on our home page.
Contact an Experienced Minnesota Bankruptcy Attorney
If you’re thinking about filing for bankruptcy, we hope that this post has helped. However, we’d strongly encourage you to at least consult with an experienced bankruptcy attorney to discuss what makes your case unique. If you’d like a free consultation with one of our bankruptcy attorneys, contact Kain & Scott by phone at 800-551-3292 or send us an email.
