Those who are struggling to make ends meet may consider a number of different debt relief options. One of those options is likely bankruptcy. For individuals, the most common type of bankruptcy is Chapter 7. It can help to understand the basic timeline of this type of bankruptcy when trying to figure out the right path to a more stable financial future.
Step 1: The application
It begins with paperwork. Those who are interested in relief through bankruptcy must file a petition with the court. If you can pass the means test, you can likely qualify for Chapter 7 bankruptcy. This is a test that basically looks at your income to debt ratio.
Step 2: The case
If the court approves the application, the court will issue an “automatic temporary stay.” This court order keeps creditors from taking steps to collect payment. This includes a creditor’s attempts to garnish payment from your bank account or paychecks, repossession of any property or other asset and foreclosure of your home.
If approved, the court will then assign a trustee to your case. This trustee will review assets and debts and determine which assets are sold to gather funds to repay creditors. Assets like your family home, primary vehicle and others are likely exempt. An attorney can review your situation and let you know how this portion would apply in your specific situation, but a number of assets are exempt and not subject to liquidation.
After certain assets are liquidated and creditors are paid off, any remaining debt is forgiven, or discharged.
Step 3: Moving on
One of the biggest critiques of bankruptcy is that it will have a negative impact on your credit. It is likely that those who are struggling to make ends meet are not paying their bills on time. If this is the case, your credit score is already taking a negative hit. Bankruptcy provides a tool to help you address the issue and move forward.
After your bankruptcy is complete, you can take steps to start rebuilding your credit score — like paying bills on time.