Bankruptcy allows a person to discharge their debts and can allow them to keep certain property. There are two types of personal bankruptcy, Chapter 7 and Chapter 13. There are income limits which affect which type of bankruptcy a person can file.
Under Chapter 7 bankruptcy, the borrower may not have to pay back any of their debts before the debt is forgiven. Under Chapter 13, the borrower may have to repay the debt but it is spread out over time.
Before filing for bankruptcy, the borrower must attend credit counseling. This must be completed 180 days prior to filing. Then, the borrower can file a bankruptcy petition with the court.
The petition must include the borrower’s current income and a list of expenses, property, debts and creditors. It must also include any expected increases in income in the next 12 months.
The borrower also must attach several documents to the petition. These include deeds, evidence of any mortgages on his or her property, tax assessed values, vehicle values, property titles, pay stubs and an income statement, among many others.
Some borrowers may be concerned about the impact a bankruptcy can have on their credit. A bankruptcy may remain on a borrower’s credit report for 10 years. It is important for a borrower whose debt has been forgiven to contact the credit agencies and provide them with a report that he or she no longer owes the debt.
It can feel overwhelming to be stuck in debt, but help is available. An experienced bankruptcy attorney can help borrowers learn about their options and navigate the process.