When debts are insurmountable and there seems no way out, bankruptcy may be an option. Bankruptcy is a legal step declaring that you are unable to pay your debts and looking for protection from creditors. This is not a step to be taken lightly as it has affects on your credit for years to come.
Bankruptcy in the United States is handled by and cases are filed with the United States Bankruptcy Court, which is a part of the U.S. District Courts. The Bankruptcy Code specifically spells the types of bankruptcy protection available and how bankruptcy proceedings will be conducted.
The types of bankruptcy most often used by consumers are:
Chapter 7: Which is basic liquidation for individuals and businesses. In Chapter 7, a debtor surrenders their non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor's unsecured creditors. In exchange, the debtor is entitled to a discharge of some debt. The amount of property that a debtor may exempt varies from state to state. Chapter 7 relief is available only once in any eight year period.
Chapter 13: Which is rehabilitation with a payment plan for individuals with a regular source of income. In Chapter 13, the debtor retains ownership and possession of all of their assets, but must devote some portion of future income to repaying creditors, usually over three to five years.
According to government statistics, approximately 65% of all U.S. consumer bankruptcy filings are Chapter 7 and Chapter 13
Here are some facts about bankruptcy:
1. Bankruptcy is a legal declaration that you are unable to pay your creditors.
2. An individual may file for “voluntary bankruptcy.”
3. Bankruptcy provides a debtor with protection under the Federal Bankruptcy Code that can save assets and work out pay arrangements or in some cases eliminate payments to creditors.
4. You should consult a legal professional and/or a financial professional before making a decision to file for bankruptcy.
5. There are long-term consequences of personal bankruptcy on your credit standing.
6. Bankruptcy will remain on your credit report for up to ten years.
7. You will not be excused from certain debts such as IRS debts, Federal Student Loans and child support payments.
8. Any pension or profit sharing plans you are involved in could be negatively affected.
9. Bankruptcy could affect getting future credit, mortgages, auto loans, etc.
**This article is not meant to give legal or financial advice. Bankruptcy is a very serious financial and legal matter and you should always consult an attorney for all the legal details and consequences. This article is intended only as an overview of bankruptcy in general.**
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Here is an offsite link to U.S. Federal Bankruptcy Courts official website - you’ll find more information on the basics, bankruptcy forms, rules, resources and more: U.S. Federal Bankruptcy Courts official website
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You may also be interested in this book from Amazon.com – here is a direct link:The New Bankruptcy: Will It Work for You? (2nd edition)
