Bankruptcy - it's a scary word, isn't it? In a way, that's good,
because anything this serious should be a little scary. In a
perfect world, no one would have to declare bankruptcy; they'd be
able to find a manageable solution to their financial distress
without this final blow to their self-esteem. Sometimes,
however, there truly is no other workable solution. There are a
lot of reasons why someone may be driven toward declaring
bankruptcy. They could have unexpected medical bills,
overwhelmingly large credit card debt, suffered a job loss, or just
gotten divorced. Life is rough and sometimes it deals us a hand
we have no choice but to play out. If you find yourself in this
situation, educating yourself on the basics of bankruptcy is the
first step you need to take.
For personal bankruptcy, there are two types - which one you
choose will depend on your individual circumstances and needs.
1. A Chapter 7 Bankruptcy is the liquidation of all of your assets
in order to pay your creditors; after which, you are then
discharged from most, or even all of the debt you claimed in the
bankruptcy. Under court supervision, your assets will be
collected and sold, and the cash is then distributed among
those to whom you owe money. You do have rights to retain
some property if it falls under certain exemptions; such as your
house, your car, etc... However, the rules for these exemptions
are strict. If you have a lot of equity in your home, or if it is worth a
lot of money, it probably won't fall into an exemption category. If
this is the case, a Chapter 7 bankruptcy may not be right for you.
2. A Chapter 13 Bankruptcy allows you to keep valuable assets
you may wish to retain that do not fall under any of the
exemptions in a Chapter 7 bankruptcy, but in order for this to
happen, you must create a repayment plan to pay off most or all
of your debt to your creditors. These payments are generally on
a monthly basis and range from 3 to 5 years in length. By filing a
Chapter 13 bankruptcy, you are protected from any collection
activities whatsoever, as long as you abide by the plan. Miss
even one payment, however, and the court will dismiss your
case.
Both types of bankruptcy will show up on your credit report,
though a Chapter 13 bankruptcy can only appear for a total of 7
years - just like any other damaging information (like late
payments). A Chapter 7 bankruptcy will be on your credit report
for at least 10 years. Take this into consideration as well when
deciding which type of bankruptcy to file.
Deciding to declare bankruptcy is difficult for anyone. If filing
bankruptcy is the route you choose, consult with an attorney to
make sure you have the most up to date information that will
apply to your finances. A bankruptcy attorney will be familiar with
all the nuances of the bankruptcy laws in your state and how they
may affect you, and will give you the professional assistance you
need to proceed with the bankruptcy process.
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