The Two Types of Bankruptcy
The two most common types of bankruptcy are Chapter 7 bankruptcy and Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, sometimes called a "liquidation," eliminates all forms of unsecured debt, such as medical bills, credit cards and personal loans. This is the most common type of personal bankruptcy. In general, you can keep your car and home if you are current on the payments. Any property such as boats, expensive luxury items and additional property, however, may be sold under Chapter 7 bankruptcy in order to discharge your debts.
Chapter 13 Bankruptcy
The second type of bankruptcy is Chapter 13 bankruptcy, also called a "reorganization." Chapter 13 bankruptcy restructures your payment of all debts, including your mortgage and any other secured debts in order to prevent foreclosure. If you choose Chapter 13 bankruptcy, the bankruptcy court will design a plan for paying off some debts, reducing other debts and completely eliminating others. Generally, you will stay in the bankruptcy program three to five years with the court monitoring your progress.
Filing For Bankruptcy:
What Happens Next?
Once you commit to filing bankruptcy, bill collectors must, by law, stop harassing you. This means they cannot write to you, call you or otherwise contact you. If they do, tell them you are in the process of filing bankruptcy and that you have a stay against any collection proceedings. Within a few weeks, each creditor will get a letter from the court informing them of the bankruptcy proceedings.
Filing Bankruptcy
- The Downside
Be aware that a bankruptcy filing will stay on your credit report for a full ten years, which will severely damage your credit score. This makes it extremely difficult to get approved for an unsecured credit card or get an unsecured loan. The consequences of filing bankruptcy may not pose a problem for you if you have a good, steady job and can live reliably on a budget. If, however, you’re used to having easy access to credit to augment your lifestyle, think seriously before choosing bankruptcy as an option.
Bankruptcy Help
- Don’t Go It Alone
To file for bankruptcy, you really require the services of a qualified bankruptcy attorney. Why? Because bankruptcy laws are complex and you will be required to appear at least twice in bankruptcy court - once at an initial hearing, and then at a discharge hearing, where a bankruptcy trustee will question you after reviewing your case. You’ll need a bankruptcy lawyer to help you provide the right answers - as well as to help you complete the complicated paperwork needed to file bankruptcy. The cost of a good bankruptcy attorney is far outweighed by the peace of mind you’ll have with someone experienced leading you through the process.
Bankruptcy Alternatives
In addition to finding a good bankruptcy bankruptcy attorney, consider credit counseling or debt and bill consolidation. For more information on bankruptcy options, visit the following websites:
