The word “bankruptcy” has a lot of negative connotations, but when your debts are piling up, and there is no relief in sight, bankruptcy may indeed be your best option. It can be a great stress relief to get your creditors off your back and start fresh. However, the process can also be confusing, especially for those who have never been through it before. An experienced bankruptcy attorney can help you decide which type of bankruptcy works for you (typically Chapter 7 or Chapter 13 for individuals) and guide you through the entire legal process.

Chapter 7

In a Chapter 7 bankruptcy, a debtor may end up wiping their liability slate clean. Usually, this works for those with large credit card debt or medical bills and not enough income to cover the expenses. Although part of the process includes a liquidation of the debtor’s assets, some assets can be exempt, and an attorney can help you determine which assets you may have. Often, debtors do not have anything else of significant value, so their bankruptcies fall into the “no-asset” category. 

The discharge for a Chapter 7 bankruptcy often only takes a few months, and the filer can move along without any more creditors calling them. The downside, of course, is the impact on the filer’s credit score, and the fact that the bankruptcy will remain on his or her credit report for 10 years. Still, most people can apply for and receive credit within that time period. They may be required to pay higher interest rates or have lower credit limits.

Like most things in life, bankruptcy can be either a negative thing or a positive thing - it all depends on how you handle it. There are certain things that you can and cannot do when filing for bankruptcy. Violating bankruptcy laws can result in criminal charges, meaning you could be subject to up to five years in jail and $500,000 in fines. If you want to make your bankruptcy process a good one, be sure to avoid making these costly mistakes:

1. Lying or Attempting to Hide Assets

The number one thing you should not do when filing for bankruptcy is lying about factors that could make or break your ability to declare bankruptcy. When reporting your assets, income, or debts, you should be completely honest or you could face criminal charges and your bankruptcy case will be dismissed. To file for a Chapter 7 bankruptcy, you have to go through what is called a “means test” which examines financial records, income, expenses, and your debt to determine whether or not you qualify. Lying or hiding assets so you pass the means test is not good.

2. Increasing Your Credit Card Debt

This is another no-no when filing for bankruptcy. You may think that bankruptcy will relieve you from all of your credit card debt, but typically, credit card purchases that are made within 90 days of filing for bankruptcy are not included in the bankruptcy relief. This means that you will be responsible for paying your creditors that money.

When people get in over their head with debt, the laws of the United States have provided legal options to help. Bankruptcy is a legal way for people to be released from liability for their debts. The bankruptcy process occurs in a court with a judge and a court trustee who will examine the ability of the person to pay their debts and decide whether or not their debts should be discharged. There are two different types of bankruptcy that the majority of bankruptcy cases are filed as: Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

The majority of bankruptcy cases in the United States are filed as Chapter 7 bankruptcies; these accounted for 63 percent of cases in 2015. A Chapter 7 bankruptcy is what you usually think of when you think of bankruptcy--all of your debts are discharged if you are granted a bankruptcy under this chapter.

In a Chapter 7 bankruptcy, you are able to keep exempt property, which can include: