Thinking about filing bankruptcy? Do you understand what that really means? Filing bankruptcy can impact your life and finances in many different ways, so it's a good idea to educate yourself about your options before taking action. It's also very important to speak with a professional before making your decision. Consider these helpful tips on the different types of bankruptcies to start your education.
Some people think bankruptcy is just an easy way to make their debt go away. Not true. In fact, personal bankruptcy is generally considered a last resort for eliminating debt. This is only a short-term solution and the negative results can be long-lasting and financially painful. For example, a bankruptcy stays on your credit history from 7 to 10 years making it very difficult to get credit, buy a home, a car, or qualify for life insurance. Sometimes a bankruptcy on your record can even prevent you from getting the job you want.
It's Not All Bad …
On a good note, bankruptcy is a legal procedure that offers a "fresh start" to people who can't satisfy the debts by any other means. Please keep in mind that bankruptcy laws are changeable, and you should always consult a qualified attorney regarding your personal financial situation and the current bankruptcy terms.
There are two types of personal bankruptcy, and each must be filed in federal bankruptcy court. Also, both types require filing fees.
Bankruptcy Options:
Chapter 13 -- Reorganization
· If you have steady income, this type of bankruptcy allows you to keep property, like a mortgaged house or car, that you might otherwise lose. The court approves a repayment plan allowing you to use your future income to pay off a specified amount during a three-to-five-year period, rather than surrendering any property. Once you've made all the payments, you receive a discharge of your debts. Chapter 13 is definitely the most common bankruptcy today since it's easier to qualify for than Chapter 7.
Chapter 7 -- Liquidation
· Liquidation is known as "straight bankruptcy," because it completely eliminates your debt. It involves liquidation (selling or surrendering) of all assets that aren't exempt, such as automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official, a trustee, or turned over to your creditors. You can receive a discharge of your debts through Chapter 7 only once every six years. This type of personal bankruptcy is much harder to qualify for.
Remember financial experts consider bankruptcy a last resort to debt elimination because it is very damaging to your credit history and remains on your record for 7 to 10 years. Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. They also allow for some exemptions to keep certain assets, although those exemptions vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations.
Damage Control - If you're thinking about getting help to manage your debts, be cautious! Before doing business with a credit counselor or attorney for debt elimination, check them out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. Find out more about choosing a credit counselor see Knee Deep in Debt Part II. If you're reading this article, maybe you're considering bankruptcy and are doing your homework first - good job!
Still, bankruptcy should not be considered without professional help. You may have other options. Want to know what debt elimination service is best for you? Talk to an expert who can provide you with a detailed analysis to determine what service best matches your circumstances.
This information is provided solely for educational and informational purposes and does not constitute legal advice. References: www.ftc.gov
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