Filing for bankruptcy can make a person feel ashamed. But if you are facing bankruptcy, know that there’s no reason to feel this way! In our economy, it’s not uncommon for people to need a “re-start” on their financial situation. For example, just take a look at our list of celebrities that have gone bankrupt.
50 Cent. In 2015, rapper “50 Cent” filed for bankruptcy days after he was ordered to pay $5 million to a woman who alleged he posted a sex tape of her online without permission. His assets and liabilities were in the $10 million to $50 million range.
Donald Trump. By now everyone knows that real estate mogul and President, Donald Trump has filed for bankruptcy numerous times. He first filed a Chapter 11 bankruptcy in 1992, and then again in 2004 for his casino empire to reorganize his business after creditor negotiations failed.
Abraham Lincoln. The 16th President of the United States of America declared bankruptcy in 1833 as the result of a failed business. Back then, it was required that those who filed for bankruptcy pay their creditors back over a period of 17 years. The maximum requirement term for Chapter 13 in current times is 5 years.
Cyndi Lauper. The “Girls Just Want to Have Fun” singer filed bankruptcy in 1981 after she split with her band, Blue Angel, and was then sued by her manager for breach of contract. Three years later she released the hit she is famous for.
Toni Braxton. Another singer, Toni Braxton, has filed for bankruptcy twice: in 1998 and 2010. In 1998 she filed because of low royalties from her record label, and filed again in 2010 because of illness and having to cancel a Las Vegas residency.
There are numerous reasons that people file for bankruptcy, and you should not feel ashamed if you are considering doing the same.
Bankruptcy means seeking help to get back on strong financial footing. There are various forms of bankruptcy that people file for, including: Chapter 7, 11, and 13.
Chapter 11 Bankruptcy
Under Chapter 11 bankruptcy, a business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits. If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.
A discharge of debts is the main reason you enter Chapter 11 bankruptcy, and it happens after you have made all required payments to your unsecured creditor class. After paying everything off you will ask the court for a discharge of the remainder of your unsecured debts. This motion prevents any of these creditors from collecting on any of the debts in the plan. This is the end of your Chapter 11 bankruptcy.
Chapter 13 and Chapter 7 Bankruptcy
Chapter 13 bankruptcy is designed to allow you to keep all of your property, but is also determined by your property. The amount of your nonexempt property affects how much unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans.
When you file a Chapter 7 bankruptcy, almost all of your assets and property are liquidated and thus become property of the bankruptcy estate that is sold to allow you to repay your debts. There are some exceptions to this though.
During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors. Just because your assets are being sold, that does not mean that all of your property needs to be sold.
Overall Basics of Bankruptcy
Chapter 7 bankruptcy case lasts an average of four months. A Chapter 13 bankruptcy plan lasts for three to five years. A Chapter 11 bankruptcy case may last for two years or longer.
Public Scrutiny During Bankruptcy
When filing bankruptcy you must be prepared to expose your financial life to the public. You will be required to attend a meeting of creditors when you file for bankruptcy protection. During which the bankruptcy trustee (and maybe even one of your creditors) will ask you probing questions in a public room. Often this can be an extremely uncomfortable and embarrassing process.
Disclosing Your Financial Information During Your Bankruptcy Case
You must be completely honest in bankruptcy because bankruptcy courts feel that only the honest debtor is entitled to a discharge of debt. You must list all of your property, debts, and creditors. If you fail to do so you may you lose the bankruptcy discharge. Because dishonesty in bankruptcy is a serious federal crime you might also be subject to an FBI investigation.
Requires Great Attention
Because bankruptcy is based on forms many people perceive it is a simple and straightforward process. But the forms contain complex questions about your financial affairs and require sufficient time to understand the bankruptcy forms before filing for bankruptcy.
Bankruptcy Discharge is Personal
Discharge is the ultimate goal of bankruptcy. It bars your creditors from ever attempting to collect debts from you and you alone, and does not eliminate the debt itself. So, for example, if you are one of the co-signers on a home loan and you file for bankruptcy, the debt is not wiped out and the lender can still seek to collect the debt from your co-signer.
Deciding on Bankruptcy
Filing for bankruptcy can provide a way to clear your debt while also giving you a fresh start. But many factors need to be considered before you decide to go through with bankruptcy. It’s not something that should be entered into lightly. It can impact your credit score and other aspects of your life for a long period of time, and should not be seen as a “get out of debt quickly” option.
Before you consider bankruptcy, evaluate your options. Considering working with a bankruptcy attorney to assess your situation. What are the types of debt you have and what are your goals when it comes to that debt? Remember that a bankruptcy filing will not eliminate certain forms a debt. If that’s the debt that you are dealing with, then know that bankruptcy will not help you.
It’s important to remember that many creditors will work with you to settle debt. They are often very willing to work with you on repayment plans that would allow you to avoid filing for bankruptcy.
Qualifying for Bankruptcy
If you do decide that bankruptcy is the option you’re going to take, you will need to determine if you are eligible.
You will also need to understand the type of bankruptcy you are filing.
Chapter 7: This is also called liquidation bankruptcy. In Chapter 7 bankruptcy, a bankruptcy trustee cancels many (or all) of your debts. Some of these debts can also be liquidated (or sold) to repay creditors. To qualify, your income must be low enough to pass a standard bankruptcy means test.
Chapter 13: This is also called reorganization bankruptcy. In Chapter 13 bankruptcy, you are able to keep your property, but you reorganize your debt in order to pay back all, or a portion, of your debt over a three to five-year period. To qualify, your amount of debt cannot exceed certain dollar limits.
Choosing Chapter 7 or Chapter 13 Bankruptcy
The type of bankruptcy you file, either Chapter 7 or Chapter 13 bankruptcy, depends on numerous circumstances, including:
- types of debt you have
- your income and expenses
- whether you own nonexempt property
- goals you wish to achieve through filing
Once you determine these things, you should work with a bankruptcy attorney to determine next steps. You will also want to look at your timing, and what debts are coming due (if they are not already post due). You might decide that you need to file an emergency bankruptcy.
Working with a Bankruptcy Attorney
Facing debt can be overwhelming. The bills can continue to pile up and the creditors can continue to harass you unless you take responsibility and take action. Working with a bankruptcy attorney to guide you through the process of debt consolidation and/or bankruptcy is the first step to getting back on to solid financial footing. The laws regarding bankruptcy can also be confusing.. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have. There can be a lot of questions during this extremely stressful time. Let the lawyers at RHM LAW LLP walk you through the process so you can achieve the best outcome possible.