People who are heavily in debt and find themselves unable to pay back what they owe to creditors have the option of filing for bankruptcy. Bankruptcy is a legal avenue that provides debt relief to consumers.
When all other efforts to correct your financial situation fail, you may think of bankruptcy. When you file for bankruptcy, it stays on your credit history that stays for a period from 7 to 10 years.
Federal courts deal with bankruptcy cases. If you are thinking of filing for bankruptcy, it is advisable to seek the advice of a bankruptcy attorney and to file through one, so you know the filing is done properly. You will have to provide the attorney with all the necessary information about your debts so that they can determine the best way to file your case.
Filing for bankruptcy helps you get a fresh start in the credit arena, as all your debts have to be written off. Collection is impossible beyond a certain point.
Bankruptcy is commonly filed under the four options available - Chapter 7 (liquidation of individuals and businesses), Chapter 11, Chapter 12 and Chapter 13, which deals with the reorganization for different individuals.
Types of Bankruptcy
Chapter 7
Chapter 7 is a common option for individuals and businesses, as it is a complete relief bankruptcy. Chapter 7 is a liquidation bankruptcy, which is a discharge and forgiveness of debts for those who meet the criteria. Through this type of bankruptcy, your property is liquidated so that any secured debts are paid off.
Any unsecured debts that remain are discharged, and you are no longer responsible to pay them. There are certain eligibility criteria for this type of bankruptcy. It remains on your credit report for 10 years from the date of filing, and you may be considered a high credit risk by future lenders.
If you’re thinking of filing for personal bankruptcy, a qualified bankruptcy attorney can advise you if Chapter 7 fits your personal situation.
Chapter 11
This is a reorganization bankruptcy where a payment plan is agreed upon for debt repayment. It is available for individuals as well as businesses, but is used mostly by businesses, as it is very expensive and complicated with various rules and regulations.
The court supervises the reorganization of the company’s debt obligations.
Chapter 12
This is similar to Chapter 13 bankruptcy, but is specifically for farmers and fishermen. It provides for the release or exemption of property required for the maintenance and growth of the profession.
The length of repayment is 3 to 5 years. There are certain debts like wages, tax obligations and child support that must be paid.
Chapter 13
This is the most popular form of bankruptcy for individuals who do not fit the criteria for Chapter 7. The restructuring is for a period of 3 to 5 years and you need to have steady income for repayment purposes. Chapter 13 remains in your credit history for 7 years from the date of filing.
Your bankruptcy case ends when your debts are paid off in full or part, and cannot pay anymore. It is the last option when you are unable to pay as it affects your credit rating for period of 7 to 10 years, depending on the state that you filed in.