What Actually Happens When You File For Bankruptcy

What Actually Happens When You File For Bankruptcy

What happens when you can’t pay your debts? Well, once upon a time such as in ancient
Greece you might have ended up in debt bondage. Being a debt slave meant that you and sometimes
your family would work for the person you owed money to pay off your debt. This is distinct from slavery, since you were
freed once your debt was paid. Later on in history, like in Victorian England,
the poor were sent to horrific debtors’ prison and would only be released when their
debt was paid in full by friends or family. Other debtors’ prisons functioned similar
to workhouses and a debtor worked off not only their debt, but their room and board
to be freed. Currently, many countries now practice some
form of bankruptcy which reigns in debt and allows debtors to get a fresh start financially. That’s not to say that questionable debt
practices no longer exist; in some parts of the world, such as South Asia and Sub-Saharan
Africa debt bondage is still practiced. The United Nation estimates that 8 million
people are trapped in bonded labor. Thankfully, there are many groups working
to improve lives of and free people from what the UN considers a ‘modern day slavery practice’. However, today we’re discussing the basics
of how personal bankruptcy functions in the United States. There are actually 6 different possible types
of bankruptcy in the US. They are each named for the portion of the
Bankruptcy Code they are found under: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter
13 and Chapter 15. Each Chapter addresses a different type of
bankruptcy, for example Chapter 9 applies to the bankruptcy of municipalities such as
towns or cities. The majority of individuals file one of two
types of bankruptcy, Chapter 7 or Chapter 13. People choose to declare bankruptcy for a
myriad of reasons. Many financial literacy websites such as Investopedia
state that a significant amount of people declare bankruptcy each year in the US due
to costly health events. Two other major reasons why people end up
filing bankruptcy are due to losing employment and poor financial choices, including excessive
spending. Bankruptcy is a legal proceeding, where an
individual, spouses together, or a business makes a formal request to a federal court,
declaring that they are unable to repay outstanding debts. Each type of bankruptcy requires different
forms and procedures. For Chapter 7 bankruptcy the debtor petitions
the court that they are unable to pay their debts. So let’s walk through how a Chapter 7 bankruptcy
could proceed: Meet James. He has some student loans from getting his
college degree, some credit card debt, medical debt from emergency ER visit, and until 5
months ago, a decent job. Unfortunately, after being laid off, James
quickly ran through the small amount of saving he had. While James has moved into his parent’s
basement to save money and has been working some temporary gigs while he continues to
look for a permanent job in his industry, he’s months behind some bills. James decides to file bankruptcy. The first step is that James must undergo
government mandated credit counseling. The US Trustee’s Office maintains an approved
list of agencies that provide counseling at reasonable cost. Debtors are required to file a certificate
of counseling completion along with their other bankruptcy forms. Sometimes going through the pre-bankruptcy
credit counseling helps a debtor to develop a plan to resolve their debts without going
into bankruptcy. James’ second step is to file bankruptcy
forms with the court and pay fees associated with the cost of his case. In some instances, debtors can request a fee
waiver. Generally, mandatory bankruptcy court fee
costs between $300-$400 USD. The bankruptcy paperwork James has to fill
out is pretty extensive; it includes forms listing financial information, assets, income,
expenses and property exemptions. An important requirement for a Chapter 7 bankruptcy
is that the debtor does not have sufficient income to pay even at least a portion of their
debts. If the debtor has enough income, they must
file under Chapter 13 bankruptcy, which we’ll discuss shortly. The decision of which type of personal bankruptcy
to File Chapter 7 or Chapter 13 is determined through The Bankruptcy Means Test which calculates
the debtor’s income, expenses and debts to see if any repay is possible. Once James has completed the filing part of
the bankruptcy process, an automatic stay goes into effect. This stay stops most debt collection efforts,
which James really appreciates, constant calls from creditors have been making him anxious. In addition to halting communication from
creditors, automatic stays stop wage garnishments. In some cases they even temporarily stop repossession,
foreclosure or eviction proceedings for the duration of the debtor’s case, allowing
time for the debtor to come to an agreement with the creditor. After James files paperwork, the court appoints
a trustee to handle his bankruptcy case. The trustee reviews James’s paperwork.Then
his assets become part of the bankruptcy property and are scrutinized and evaluated by the trustee. The fourth step in the bankruptcy process
is the meeting of creditors held by the court. At the meeting, James under oath answers questions
about his finances from the trustee and any creditors who choose to show. Once the trustee gathers and reviews all applicable
information pertaining to James’ debt, the court makes a decision on whether or not James
is eligible for Chapter 7 bankruptcy protection. If the court denies eligibility, James may
have the option to file for Chapter 13 bankruptcy. Thankfully the court granted James’ petition. The trustee now decides which of James’
assets to sell off for money to pay his creditors. Some assets are considered exempt from liquidation
such as the house the debtor lives in as long as the mortgage is current, household furnishings
or a personal vehicle up to a specified value–basically essential assets needed to maintain a life. Common assets that are not considered exempt
are investments, jewelry, valuable artwork or collectible items such as a stamp collection. Each bankruptcy case is unique and the assets
sold depend on the facts in the individual case. Also, different states set their own rules
as to what assets are exempt and non exempt. Seventeen states allow debtors an alternative
choice, they can either choose the state exemption system or opt to follow another set of exemptions
created by Congress, called the federal bankruptcy exemptions. If a debtor lies or tries to hide assets and
is caught, the debtor can face penalties and may not have their debts discharged. In some cases, debtors can face criminal charges
for fraud for providing false information when filing for bankruptcy. Depending on the individual situation, the
debtor may be able to negotiate with the trustee to keep certain nonexempt property if they
come up with enough cash or are willing to give up exempt property instead. So James has to sell his coin collection to
pay towards his debts, but is able to keep his paid off, few years old commuter car. Depending on the state a debtor may only receive
an exemption for the functional version of an essential item. For example, if James owned outright a $40,000
car sports car, his trustee may sell the car for $40,000, use $35,000 to pay towards James’s
debts and give him a $5,000 credit for an exempt car. At this time James must resolve any secured
debt by either returning the collateral or property or reaffirm the debt, meaning that
he will continue to make payments. If James didn’t own his car outright and
has an overdue car note, he would have to let the car be repossessed or get current
on the car note and continue to make payments. Obviously, if it’s an expensive sports car,
James will have to let it go, but if it’s a budget commuter car, it may behoove James
to figure out a plan to keep making payments. The final step James must take is to complete
a debtor’s education course and file a certificate with the court confirming completion. Then generally within 3-6 months after James
has filed, he will receive his bankruptcy discharge notification and the automatic stay
is lifted. Within a few weeks of receiving his discharge,
James’ case is officially closed and his unsecured debts–his credit card and medical
debt are cleared, he will continue to have to pay off his student loans. The public record of a Chapter 7 bankruptcy
remains on James’ credit report for 10 years. For Chapter 7 bankruptcy, some debts are not
eligible to be discharged. Non dischargeable debt includes spouse and/or
child support, most student loans, and income tax debt. Common debts that are wiped out are credit
card balances, personal loans and medical bills. If money is owed on a secured debt, which
means that the debt has collateral, such as a mortgage or vehicle loan, the debtor has
a choice if they are current on their payments: they can allow the creditor to repossess the
property, thereby discharging the debt or they can keep the property and continue to
make payments under the original contract. Debtors who don’t have any valuable assets
and only own exempt property, simply have their debt discharged and don’t repay any
part of their unsecured debt. The majority of Chapter 7 bankruptcies filed
for are granted. For Chapter 13 bankruptcy, the debtor petitions
the court with a different request, instead of selling off assets and discharging debt
like Chapter 7, debtors seek to reorganize their debt and establish a 3-5 year plan for
repayment. Chapter 13 payments are then made monthly
to the court appointed trustee, effectively consolidating debts into one single amount. The trustee then distributes the money to
the debtor’s creditors, and the debtor doesn’t have any direct contact with creditors. The Chapter 13 bankruptcy process may allow
debtors to stop foreclosure proceedings and catch up on delinquent mortgage payments over
time. It also allows debtors to negotiate and possibly
set new terms for vehicle repayment and to lengthen payment plans for past due income
taxes, child support and spousal support. Meet Nicole. She has a car note, a mortgage on a small
house and a pretty good job. Unfortunately last year, Nicole had a medical
emergency and missed a few months of work, wiping out her savings, which forced her to
mainly live on her credit cards. Even worse, the medical costs exceeded Nicole’s
medical insurance. Thankfully, Nicole has recovered and is back
to work fulltime. However, at this point she’s behind on her
mortgage, car note, some of her credit cards and has a lot of medical debt. When considering filing for Chapter 13, Nicole
opts to hire a bankruptcy lawyer. For both Chapter 7 and Chapter 13, many debtors
hire a bankruptcy lawyer to assist them through the process, which can be confusing. Hiring a lawyer is more common with Chapter
13, because it tends to be more complicated. A bankruptcy lawyer can cost anywhere from
$200 for a basic meeting up to around $6,000 if the lawyer appears in court for you or
your case is complex. In Nicole’s case, she feels like it’s
worth it to shell out a few thousand dollars to try to prevent the foreclosure of her house. Like with Chapter 7, the first step in the
Chapter 13 bankruptcy procedure is that Nicole must undergo government mandated credit counseling. Then she files bankruptcy forms with the court
and pays fee associated with the cost of her case. However, as a part of her filing Nicole submits
a debt repayment plan which is often developed during credit counseling. Also, it’s likely Nicole’s lawyer would
help her create a debt repayment plan. Once Nicole has completed this part of the
process, an automatic stay goes into effect limiting communication from creditors and
temporarily halting the foreclosure of her house. The court appoints a trustee to Nicole’s
case. Next, the court holds a meeting of creditors
and then within 45 days a Chapter 13 confirmation hearing is also held by the court. For both court appearances, Nicole’s lawyer
goes with her. Nicole’s lawyer has also been in negotiations
with her creditors to get her the best outcome possible. At the Chapter 13 confirmation hearing Nicole’s
repayment plan is reviewed. Creditors may ask for clarification and raise
concerns or objections to the repayment plan. By the end of this type of hearing the debtor’s
plan is confirmed, the confirmation hearing is continued for another day, allowing time
to redo the payment plan or negotiation between a debtor and creditor. In some cases, at the confirmation hearing
the bankruptcy case is dismissed or converted to a Chapter 7 bankruptcy. Luckily, at her first confirmation hearing,
Nicole’s repayment plan was accepted. Then the court considered whether or not to
have Nicole’s Chapter 13 monthly payment be deducted directly from her paycheck. They opted to let her make the monthly payment
to the trustee on her own. For the next 5 years Nicole will continue
to make a monthly pay on her debts. After 5 years, if Nicole has remaining credit
card and medical debt, it’s discharged. She will continue to make mortgage payments
for her house. During the 5 years, Nicole was able to complete
her car loan and she now owns her car outright. In general, Chapter 13 debtors must petition
with repayment plans that can take between 3-5 years to pay off. Once the years of repayment are completed,
the record of the Chapter 13 bankruptcy stays on the debtor’s credit report for 7 years. During the 3-5 year repayment process, the
debtor isn’t allowed to incur any more debt, such as a new vehicle loan, without court
approval. Also debtors must maintain insurance on any
collateral or properties. So why do people file bankruptcy instead of
seeking other options, especially since declaring bankruptcy affects credit scores? Having a record of bankruptcy makes it hard
for a consumer to open new accounts, obtain unsecured loans or credit cards and sometimes
makes them ineligible to purchase a vehicle for several years. Bankruptcies can even affect getting security
clearances or professional licenses. However, we’d like to stress that each bankruptcy
is unique and there’s no one size fits all answer; it utterly depends on the life situations
the debtor is going through. Dealing with creditors can be extremely stressful. Others need a guided plan to begin rebuilding
their financial health, sometimes bankruptcy is simply the best option available. No matter what your financial situation the
best option for you right now is to click on this video for another great episode of
The Infographics Show or on this video over here. You’re going to love them both but you’ve
got to decide on one so click a video right now!

Comments (100)

  1. What about child support debt and prison

  2. But then who pays the credit cards companies?

  3. hi most likely wont see this but idea for a future video could be explaing how paying taxes work and minimal requirement needed to file work. I dont know it's just hard for me to understand but these videos are pretty informative

  4. Such loud music, jesus

  5. Big ups bankruptcy snort🐽

  6. Very informative, I learned some new stuff 👍

  7. Answer: Become President of the United States of America.

  8. Да не се правите че не знаете Български


  10. For the ad before the video I got a Frost Bank ad

  11. you invest in wework

  12. I have $31,000 in debt and THAT feels like too much. But I really can't complain!!

  13. I see Infographics also follows darksydephil.😂

  14. Oh you wanna file for bankruptcy? That’s gonna cost you !

  15. What happeneds if you have the best credit ever that allows you to spend a lot of money and you die who the debt handed to?

  16. DSP: What do you mean I have to pay back the money I borrowed? Nobody told me that! Ack Ack Ack Ack

    And uhhhh its Tevins fault

  17. Based on my intellectual capacity and my vast knowledge, tactically and tentatively, right from the beginning, of times especially in the light of Ecclesiastes evolution I have come to a concrete, definite and profound conclusion that I actually have nothing to say, thank you.

  18. So basically
    It takes money to go broke

  19. Who else rubbed their screen between 4:38 and 4:52 to get the speck off?

  20. I declare to many ads on this video

  21. DarksydePhil has entered the chat.

  22. i declare BANKRUPTCY

  23. Some Guy: I'm Broke and here to file for bankruptcy….

    Bank: Just fill these forms out & pay this $300 fee and i'l go ahead and take care of that issue for you…

  24. This infogapic is to depressing do. you vs the illumatite.



    -Michael Scott


  28. what we need is to teach people smart financial decisions and dramatically reduce the cost of healthcare and education

  29. What if you're handicapped and can't work when you file for bankruptcy? Does the family or guardian of the person have to pay?

  30. Make an infographic episode on how the Infographics Show manages to pop out multiple quality episodes a day.

  31. usery should be illegal.

  32. When you bet $50 against your friend and he wins but you don’t have any money

  33. Just give up on life and take the easy way out

  34. The ads aren’t working YouTube….I just like mentos now….

  35. Girlfriend buys car. Two months later gets different car, sends this car back….

  36. What happens when you go bankrupt
    You loose the game of monopoly

  37. i understand unforseen health problems and i sympathize with those people but lets be honest its mostly people living way beyond there means and zero savings for emergencies..

  38. Infographics show: Today were talking about Bankruptcy.
    European union: First time?

  39. This narrator was definitely military lol “behoove”

  40. There is no biblical/spiritual consideration for restitution based bankruptcy. Loans, yes, but restitution, no. That is to say, you won't receive Jubilee for restitution.

  41. Bankruptcy in a nutshell: Watch Wheel of Fortune

  42. Cheaper to pay an attorney to fight this than pay these thieves. Healthcare in the U.S. is a crime.

  43. Healthcare should be a basic right. Is USA even 1st world country?

  44. I completely lost it when the guy held up his hands

  45. When you file for bankruptcy your not usually really sad about it.

  46. me:mom what's that do in monopoly
    mom:.oohh you must never look there
    me 6 years later:

    -Micael Scott

  48. make a video on how to pay taxes

  49. Holy fricken ads… one at the start, 5 during the video and one at the end. 7 Ads for a 13 min video. I know you guys got bills to pay but come on.

  50. I'm confusingly confused ~_~

  51. So to get out of debt that you can't pay…you have to pay MORE to get a CHANCE at getting absolved of debts…oh and student loans, you know the thing that KILLS most fresh college grads, is almost totally immune to bankruptcy.

  52. What about musical instruments (i.e. a guitar)? I play my guitar sometimes when I'm hella stressed. It helps me get out of my head, and back in the moment.

  53. Having bad credit can keep you from getting a job. Employers check your credit. Even just walking away from a debt and not paying is not near as bad as bankruptcy. Depends on how much and who you owe.

    Many creditors will renegotiate loans instead of just not getting paid back.

    Bad credit is only suppose to be in your record for 7 years. But you will be called for years later than that or they may try to get you to reaffirm the debt. Lawyers want you to file bankruptcy as they make money. Try to negotiate first. And don't owe money.

    Never a borrower or lender be

  54. Actually, jewelry can be exempt. Under federal exemption rules, you get a certain amount for jewelry PLUS a $13,000 "wildcard" exemption that covers anything else. The value of jewelry as determined for this purpose is much less than what you paid for. Of course, the best thing to do is contact a lawyer.

  55. I clicked on this to fall asleep

    It worked🤣

  56. Of all things your student loan stays with you, that’s why I dropped out my university before it became a life debt

  57. "Due to costly health events"
    this is why you need bernie sanders people

  58. Excuse me Comments section. Do you have a moment to talk about our Lord and Savior, Phillip P. Burnell??

  59. This reminds me of Toys R Us

  60. Looks as if they’ve made this video for me

  61. I myself is actually in a huge dept right now and i don't know what to do

  62. I myself is actually in a huge dept right now and i don't know what to do

  63. ☆☆☆☆

  64. So basically filing a bankruptcy means they help u to pay debt by selling your stuff

  65. What kind of sick and twisted society allows contributing members to go bankrupt when they get ill? Move to Europe people!

  66. I learned more from YouTube then school

  67. I can see many more Nicole's in the future. Mgtow forever.

  68. Think before marrying again.

  69. Don't jab at DSP like this, it's bad luck.

  70. Can they take pets?

  71. The 80 people who disliked this went bankrupt

  72. It still astounds me that medical cost are a classic example of this; in a civilised country like the UK, the idea of a citizen being forced into poverty for being unwell is outrageous

  73. How do i file for bankruptcy?

  74. Filing for bankruptcy was the worst and best thing that ever happened to me. I paid $2000 for an attorney, to get almost $40k of debt erased. I now have a fresh start and my finances are looking up.

  75. Slavery comes in many forms. When the banks tank the economy, for instance, many are out of work then arrears accumulate. There you have a debt created by the government forcing men into poverty.

  76. In China, when you can't pay your debts your social credit score takes a nosedive and your ability to function in normal Chinese society is significantly hindered. Many Chinese individuals who know they're in danger of that happening sell their assets, disappear, and flee to another country like South Korea. That's what one toy manufacturer did when he couldn't make payroll in 2008.

  77. My buddies used to fraud big companies and tried to get me into it. Today, they can't drive, can't buy a house and can't breathe practically. I'm too witty to fall victim to the system.

  78. if you own a home and a car then you prioritize payments on those first. forget paying any credit card debt, that comes after your home, transportation, food, and medical costs.

  79. Michael scott: I DECLARE..BANKRUPTCY!!

  80. How do you hire a bankruptcy lawyer when you’re bankrupt

  81. This is a lot of work, I’ll just use the Michael Gary Scott way.

  82. I literally watched one of your videos and now YouTube is recommending me all your videos

    Why. Why YouTube ;-;

  83. I feel scared from watching this video. Because falling into Debt is as easy as tripping over something when your not looking.
    Also: Having all these monetized advertisements popping up through the video is making YouTube feel just like watching Cable Television.

  84. I think it's cool when you showed the computer screen at 11:30 it displayed a graphics editing program.

  85. What happens when you file for bankruptcy?

    Trump – You become President

  86. We still have debtor's prisons. Just try not paying your taxes or domestic support.

  87. Ah yes, economics.

  88. No worries here on my part, dear Citizens, I’ll just find some more countries to conquor if I get down to my last 1,000,000,000,000 sestertii. 😏

  89. How is it considered modern slavery if, you are WORKING to PAY OFF something you OWE that person? The only part I do not agree with is the rest of the family possibly having to pay of one member's debt since they may not be directly involved.

    Lots of gray area eh?

  90. They almost force student loans and charge more than needed

  91. So pay off all your student debt with credit card so that it can't follow you

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