Is Bankruptcy Meant To Punish Debtors?
Like many legal remedies, bankruptcy has an unfairly bad reputation. People who've never dealt with the process often assume it is painful and designed to punish them for not being financial wizards.
A bankruptcy attorney will tell you something quite different, though. While bankruptcy isn't inherently easy, you can use it as a tool to get your financial world under control. Let's look at how bankruptcy does that and what some of the upsides and downsides may be.
Discharge of Debts
Suppose your case goes as you and your bankruptcy lawyer have planned. The judge grants your petition and approves your bankruptcy.
How does the court improve your situation? The judge will discharge part or all of your debts, depending on your circumstances, the nature of the debts, and which type of bankruptcy you might have filed. A debt discharge means the law considers the attached obligations settled for all time. Your creditors can never come after you for those debts ever again.
The Filer's Credit Record
Okay, that sounds like a pretty good deal for the person asking the court for relief. What's the trade-off? One of the most obvious trade-offs is that the bankruptcy case goes on a person's credit record. Also, it will stay on your credit report for between 7 and 10 years, depending on how you filed for bankruptcy.
Liquidation of Assets
This is where bankruptcy can start to feel particularly punishing. If you file for Chapter 7 bankruptcy, the court will liquidate any of your disposable and non-exempt assets of value. This means anything you don't need to get by, such as your clothes, a practical car, furniture, and so on. A trustee will sell the assets and divide the proceeds among your creditors as equitably as possible.
Limits on Filing Again
Similarly, the court strongly discourages people from filing multiple bankruptcies right away. You will have to wait. The time depends on the type of case a person last successfully pursued and the kind they want to pursue now, but it will be somewhere between 2 and 8 years before you can file again.
There are some scenarios where you can file for Chapter 13 protection immediately after completing a Chapter 7 case. Folks in the legal trade sometimes call this a "Chapter 20" case, but it is complex. Also, it's wise to tell the bankruptcy judge what you want to do beforehand unless the court objects. You don't want to leave yourself without options and a bankruptcy case half-done.
Contact a bankruptcy lawyer for more information.