One of the most complex things to learn in personal finances is how to handle bankruptcy. Whether you are on the way to bankruptcy or if you are already about to declare it, you should check this guide and learn what this process is about
Filing for bankruptcy isn't as easy as you may think. There's a large amount of paperwork and legal proceedings that make this process a lot more complicated than it seems.
Here's a quick guide for you to learn how bankruptcy works and what it involves.
1. Bankruptcy costs
As you can imagine, the process of bankruptcy takes a lot of money out of your account. You will have to face different kinds of fees, such as administrative, government-fees, court fees, etc.
The average cost is between $1,500-$1,900. The fee will vary according to your Insolvency Trustee, so it will be based on the number of your trustee charges to file your bankruptcy paperwork.
Moreover, you will have to pay due diligence when you pick a lawyer to represent you in bankruptcy court, as many attorneys collect their fees and then dump the filing process to another person. So you will need to make sure you efficiently check the attorneys' and lawyers' backgrounds.
2. Lawyers or Trustees?
Before you start the bankruptcy process you may want to check the difference between turning to a lawyer or a trustee.
- Trustee: Is a licensed official and works with specific insolvency issues. Many of them are chartered accountants.
- Bankruptcy lawyers: Experts in insolvency law. Not generally required, unless the filing has discrepancies.
3. Facts of the bankruptcy process
Bear in mind that 401(k), IRA or ERISA accounts will not be affected by the bankruptcy.
Nevertheless, you should NEVER take money from these accounts to pay your bills. Otherwise, you will also have to face penalties and taxes.
Another thing you should constantly check after you've filed for bankruptcy is to check your email on a daily basis. The court will send you some paperwork you will need to sign and if you miss this, your process will take longer.
4. Is bankruptcy always the best option?
Filing for bankruptcy is not always the best option, even if you are unable to pay your debts or are insolvent.
It will always depend on your specific situation. For example, bankruptcy may be inadvisable if your debts aren't dischargeable. This is mainly because these types of debts will remain on your record while the dischargeable ones will be erased.