Bankruptcy Guide
Bankruptcy is a way to temporarily suspend (during the course of the proceeding), and later prevent, all debt collection actions for debts you had at the time you filed your bankruptcy petition. Once a person files for bankruptcy, the federal court grants an "automatic stay." This prevents creditors from attempting to collect on any outstanding debts. Creditors may petition the court for relief from the automatic stay. Often, creditors whose loans are secured by property are permitted to take possession of that property.
Individuals may choose several different types of bankruptcy based upon the
amount and nature of the debts, the exemptions available, and the types of
assets they own. The different bankruptcies are named after the corresponding
chapter in the code.
Chapter 7 is referred to as "straight" or "liquidation." In a liquidation, the debtor turns all of their assets over to a trustee. The trustee then liquidates (sells) all the assets and distributes the proceeds to the creditors. The person is then discharged of all debts, except those which cannot be discharged. Creditors must look solely to the assets held by the trustee for payment. Creditors can’t come back later and try to collect their claims from the discharged debtor. A debtor can receive a Chapter 7 discharge once every seven years.
Chapter 13 debtors pay their debts through future income rather than liquidation of their current assets. This chapter usually allows the debtor to keep much of his or her property. Under Chapter 13, the debtor presents a plan for repayment, which is reviewed by the trustee, the creditors, and the Bankruptcy Court.
Chapter 11 is a reorganization proceeding, usually involving corporate debtors. It’s also available to individuals who have engaged in commercial enterprises. This chapter is used when the owner desires to stay in business, restructure existing debts, retain assets, and attempt to reorganize under court supervision.
Chapter 7 is referred to as "straight" or "liquidation." In a liquidation, the debtor turns all of their assets over to a trustee. The trustee then liquidates (sells) all the assets and distributes the proceeds to the creditors. The person is then discharged of all debts, except those which cannot be discharged. Creditors must look solely to the assets held by the trustee for payment. Creditors can’t come back later and try to collect their claims from the discharged debtor. A debtor can receive a Chapter 7 discharge once every seven years.
Chapter 13 debtors pay their debts through future income rather than liquidation of their current assets. This chapter usually allows the debtor to keep much of his or her property. Under Chapter 13, the debtor presents a plan for repayment, which is reviewed by the trustee, the creditors, and the Bankruptcy Court.
Chapter 11 is a reorganization proceeding, usually involving corporate debtors. It’s also available to individuals who have engaged in commercial enterprises. This chapter is used when the owner desires to stay in business, restructure existing debts, retain assets, and attempt to reorganize under court supervision.
A negative effect of declaring bankruptcy is the negative impact on your credit record. Once you file bankruptcy, it stays on your credit report for 10 years. Filing bankruptcy can make it more difficult for you to obtain credit, buy a house, car, or get other financing. However it isn't impossible to get financing, just harder, and your interest rates may be higher than someone who had never resorted to filing. On the other hand, creditors know you can't file for another 7 years, and many are quite happy to extend credit to you right away after filing.
Bankruptcy is really the very last resort for debt relief. If you can't afford to pay your bills, you have no savings, and have tried credit counseling, then consider filing. Only you can answer the question of whether bankruptcy is right for you or not. Review your finances, talk with an attorney, and then weigh your options. If your budget won’t sustain the ability to payoff your debts within 5 years, you need to consider bankruptcy. If you have options for reducing your debt, or increasing your income then you should try and work through your financial obligations. You can obtain a free legal consultation on bankruptcy and your options from local attorneys and it's always a good idea to seek legal advice on such an important matter.
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