How Bankruptcy Works

if you lived in ancient Greece and were unable to pay your debts the system came down pretty hard your creditor could put you and your family into debt bondage and force you to work however he saw fit until your debts were paid off or you die today thankfully in the vast majority of the world debt slavery is a figure of speech as opposed to well real slavery but the stress caused by mounting debt can still feel like you're dragging along a ball and chain massive medical bills spiraling credit cards out of control student loans can make the strongest among us weak at the knees some magic phrase you could just shout to make it all disappear I declare bankruptcy as you know and Michael Scott quickly learns bankruptcy isn't just a word you declare and your debts disappear it's a complicated legal status that is designed to provide relief to those who are financially insolvent if you've cut your expenses down to a bare-bones lifestyle and still can't make minimum payments on your loans it might be time to think about bankruptcy that relief can seem like a life preserver when you're caught in a rising sea of debts but how does bankruptcy work what are the risks and can it really make all of your problems disappear in the United States there are multiple forms of bankruptcy you can declare for debt relief there's bankruptcy for businesses farmers even municipalities but the most common forms of personal bankruptcy you'll hear people talk about are chapter 7 and chapter 13 the first thing you need to know is that believe it or not it actually costs money to file for bankruptcy three hundred and thirty five dollars in fact to file for a chapter seven and three hundred and ten dollars for a chapter 13 if you choose to hire a bankruptcy lawyer you will also be responsible for paying the lawyers fees which will likely be somewhere between fifteen hundred and four thousand dollars depending on which kind you file for and the complexity of the case chapter seven bankruptcy is a liquidation bankruptcy where non-exempt property is sold and you to pay off your debt it's generally meant for people with limited incomes who do not have the ability to pay back all or some portion of their debts but the government doesn't just allow anyone to file for it first you must pass the chapter seven means test the easiest way to pass is if your annual income is below your state's median this number usually falls between 40 and $70,000 again depending on your state you can find the specifics for each state here if your income isn't low enough you might still be able to pass the test by proving you don't have a lot of disposable income to find out if you pass either of these tests you can simply fill out government forms 122 a one and two if you qualify the court will decide what is up for grabs to sell off but States usually have a list of personal property exemptions such as a basic vehicle some equity in your home even cash you've gotten your bank accounts and retirement savings so you won't end up living on the street or without transportation if you're married and filing together that can typically double the value of exemptions but there is definitely downsides you won't be allowed to use credit cards for quite a while maybe years and those student loans you hate yeah the lenders will have to stop harassing you with calls but they're not going anywhere unfortunately student loans are not eligible for forgiveness if you can't meet the requirements of chapter 7 you might want to check out chapter 13 also known as reorganization bankruptcy your property is not sold when you file but you will be required to complete a three to five year court-mandated payment plan if you play by the courts rules and don't miss a payment any unsecured debts that remain after that time period like credit cards and medical bills may be discharged or forgiven to be eligible you have to have regular income unsecured debts under three hundred ninety four thousand seven hundred twenty-five dollars and secured debts under 1 million one hundred and eighty four thousand two hundred dollars but as with chapter seven even if you successfully complete the process there are certain types of debts not eligible for forgiveness like tax debt child support and yep once again student it's also probably no surprise that bankruptcy can dramatically decrease your credit score and will stay on your report for seven to ten years this can cause issues with potentially finding a place to rent or even change jobs since many employers now look at credit reports but if you were already behind on your debt payments before you filed your credit score is most likely already shot and it won't make it that much worse and don't despair bad credit scores are like broken bones they're designed to heal over time assuming you follow doctor's orders and don't engage in the behavior that broke it in the first place keep in mind this bankruptcy is also going to be on public record it's not like you'll be forced to wear a scarlet B on your chest but if the court decides to take your payments from your paychecks directly your employer will be notified as will any co-signers that may be on your loans then there's one last thing you'll be required to do before your debts are discharged you'll have to attend an approved or spun consumer debt these tend to focus on financial education and lessons on budgeting and are designed to help prevent you filing for bankruptcy again if there were only a place to learn these lessons beforehand bankruptcy is not a simple or fast process filing and acceptance can take many months and you have to be 100% diligent about following every court order to the letter and paying every bill you're still on the hook for like property taxes and student loans if it's used as a last resort bankruptcy can offer you the relief you need it might put you through the wringer but at some point it will end and you can start over and that's our two cents thanks to our patrons for keeping two cents financially healthy click the link in the description if you would like to support us on patreon if you or someone you know has gone through personal bankruptcy what do you wish you had known beforehand let us know in the comments you [Music]

Channel: Two Cents

Views: 428,460

Keywords: pbsds, pbs digital studios, pbs two cents, pbs 2 cents, two cents, money, bankruptcy, personal finance, debt, Chapter 7, Chapter 13, debt relief

Id: tpI0XWjIsqI

Length: 6min 29sec (389 seconds)

Published: Wed Nov 13 2019