This is a touchy subject because, to be honest, no one ever imagines that something like this could ever happen to them, especially when they are starting their own business. Most people are usually very driven and optimistic and they do not have that negative mindset that eventually they will be forced to file for bankruptcy.
It is like seeing your dream falling into pieces, however, that is the moment when you have to be honest with yourself and face reality. Some things in life you can plan or at least have control over it, unfortunately, this isn’t one of them.
Entrepreneurs usually turn to this when they want to minimize the impact on their clients, consumers, workers, their family, and of course to themselves. Since it is something that doesn’t happen often (or ever if you are lucky) you might feel lost and puzzled.
Therefore, this article will cover some major steps as guidelines during this difficult time.
Defining Bankruptcy
Many people have described this entire process as exhausting and stressful, and although it frequently is, it doesn’t have to be every time. Probably the most tiring part of it is trying to analyze and think of all the ways that led you to this situation.
Once you figure that out, you will be ready to start filing. It’s important to define something before facing it and in this case, there are two types of bankruptcy: Chapter 7 and Chapter 13.
Chapter 7
This one showcase that everything you own is either liquidated or sold to pay off creditors. In this case, state laws define the types of property that are exempt from liquidation, however, some other parts may be involved, such as, your car, personal property (refers to clothing), a piece of your home equity, etc.
In order to apply for this one, you first must take a means test and pass it to see whether you have enough resources to repay at least some of your debt.
Chapter 13
This one is a little bit different. It is intended for those people who have regular earnings, but are still not able to repay all of their debts. Chapter 13 enables you to keep the things you own, however, with the help of the trustee you must design a plan with a goal to repay creditors in three to five years.
During this period of time, creditors are not allowed to take anything away from you. Once this period is over, the court will discharge the rest of your eligible debts.
What To Do Next?
Find A Solid Attorney
Bankruptcy can be tiring and confusing; finding someone who can guide you through the process will take the load off your shoulders. Finding a good, experienced bankruptcy lawyer is the first major step. It doesn’t matter whether it is someone you know through a friend or family, it just has to be a person who has dealt with this issue before.
When it comes to pricing, some of them charge a little bit or work pro bono at least until you get back on your feet. Some places, like San Diego, are famous for having great advocates. Therefore, if you are looking for some first-class assistance concerning bankruptcy help in San Diego you just might be able to find it.
We know that this is a difficult situation, however, sometimes it’s better to pick the one that is a bit more expensive, than to hire a cheap one who maybe doesn’t even know what he/she is doing and you’ll be needing a person you’ll be comfortable with.
Collect All Your Documents
This is the second most important thing. It is necessary because it will help you understand your current financial situation. Firstly, obtain a free copy of your credit report.
Keep in mind that some of your debts may not be visible on this report and it usually refers to personal loans, medical bills, tax debts, and payday loans. Create a list of everything you own that isn’t on your credit card so that later you do not have to waste your time searching for that information once you start filling out bankruptcy forms. Once you gather all these documents, you can file the petition.
Meet With The Creditors
If everything goes smoothly and as you planned, this is supposed to be your next step. You will then get a court trustee who is going to arrange the meeting with your creditors.
Keep in mind that the creditors are not obligated to be there during the meeting, however, if they do, they will probably ask you or your court trustee some questions regarding your case.
And Then…
Filing For Bankruptcy
After this meeting and counseling, you file with the court. What does this mean? It means that the bankruptcy can now be seen on your credit report and that creditors do not have the right to harass or call you in an attempt to collect your debt.
Why aren’t they allowed to reach you? Well, it’s because bankruptcy in this case equals “automatic stay” which means that any forms of legal activities are forbidden for the time being due to the fact that the bankruptcy is filed.
Debts Are Recharged
This can go in two directions depending on your type of bankruptcy, we mentioned before – Chapter 7 or Chapter 13. If you choose the first one, the rest of your debts are going to be discharged once the trustee sells your nonexempt assets and pays off creditor claims.
On the other hand, if the other one is involved, you must finish with a personal financial management course before the court discharges your debts. It can be completed in different ways – by reading a book, online or if you consult with a counselor. The entire point of it is to learn more about personal financial management.
As we stated in the beginning, this situation can be pesky and time-consuming, however, it is important to learn from it and ensure not to repeat it again. If you haven’t experienced this before then take these steps as a useful preparation in case something like this occurs.
You may be interested in: “What to Expect When Filing for Bankruptcy”