Folks are grappling with financial hardship because of the COVID-19 pandemic. With our government restricting movement (with good intentions) the economy has taken a major hit; the income-streams of a lot of people have been affected, and their savings are running dry. This pandemic has driven many folks into debt, causing them to entertain the idea of declaring bankruptcy.
Filing bankruptcy is the legal route by which people who are burdened by debts they cannot repay seek fractional or full reprieve from their creditors. Each year, countless businesses and people declare bankruptcy. Considering the psychological distresscaused by unpaid debts, getting declared bankrupt is not always as bad as it’s made out to be.
But before moving to court, ensure that you understand the following.
Chapter 7 Bankruptcy
It’s the most common type of bankruptcy because it enables you to get rid of your unsecured debts by just giving up a part of your assets. Most debtors prefer it over Chapter 11 or Chapter 13. It can be executed quickly, and the debtor is not asked to repay the loan over an extended period. The debtor also gets to keep most of their property, especially if they had no luxuries to their name. The entire process might last three to six months.
Before you initiate the process, you want to be sure that you are eligible. Start by analyzing your debts. There are certain types of debts you cannot escape from e.g. child support, tax bills, and student loans. You must also determine what properties you are allowed to retain.
The debtor initiates the process by filing the bankruptcy forms, where the court extracts details of their property, debts, income, expenses, and business transactions. The debtor pays the filing fee, or requests a waiver, and submits the documents to a court-approved trustee.
The debtor attends a meeting between the trustee and the creditor, where the trustee challenges the information in the bankruptcy form, and also listens to the creditor. If your petition is successful, the court gives an order that you are released from qualifying debts.
What Happens to the Debtor’s Property?
Their property may be divided into two categories: exempt and non-exempt property. With exempt property, creditors may not claim it. The exemptions are designed to protect the debtor from losing the essential property. Non-exempt properties may be sold to repay the debt.
Creditors and the trustee have two months to object to the discharge after the meeting. This is done by starting a lawsuit in the court. If the creditor doesn’t start a lawsuit within two months, then the court will free the debtor from their unsecured debt.
The debtor is required to take an online course before the discharge. They have to pay a certain amount for the course, but if they are of low means, they can apply for a fee reduction or waiver. Once the court issues a discharge order, the creditor has no right to pursue them again.