Bankruptcy is a formal legal procedure whereby an individual is relieved of certain debts they are not able to repay. Depending on what chapter of bankruptcy one files for, it can remain on a credit report for ten years. Here is a time line providing information regarding the bankruptcy process.
Six Months Prior to Filing
Individuals undergo bankruptcy counseling from an organization that has been approved by the government. Financial situations are evaluated, bankruptcy alternatives are reviewed, and a personal budget plan is created to possibly avoid bankruptcy.
Filing for Bankruptcy
There are two chapters of bankruptcy individuals tend to file for – Chapter 7 and Chapter 13. Chapter 7 bankruptcy is a total liquidation of all dischargeable debt. Chapter 13 bankruptcy is a reorganization of all debt, meaning individuals have a court appointed repayment plan of three to five years.
After Filing for Bankruptcy
An automatic stay is provided to aid people in maintaining some semblance of life. It is issued by the court to protect the individual for any collection activities. An automatic stay can prevent:
Speak with a bankruptcy attorney to find out what is not covered by an automatic stay, such as student loan and pension loan repayments.
One-Two Months after Filing
Individuals meet with bankruptcy trustee to give property to sell to pay off creditors. There are federal exemptions, including:
Before and After Discharge of Debt
Before discharge, individuals complete the debtor education course to learn how to create a budget, use credit wisely, and manage money.
Three-four months after discharge, individuals can begin cleaning up their credit report, such as getting a secured credit card.