Guest Author - Dianne Walker
Unemployment can play havoc with your credit. When self help remedies such as developing a budget, contacting your creditors or credit counseling does not work, the last resort left on the table will often be bankruptcy. When you determine that there is no other option available, contact a lawyer. As you begin to consider filing for bankruptcy, here are some of the basics:
The main reason that bankruptcy should be the last resort is due to the long term effects that can occur. Bankruptcy will stay on your credit report for ten years. This will make it difficult to get future credit, buy a house, rent an apartment, get a job or even obtain life insurance. There are times bankruptcy is the only option so careful consideration should be given.
Significant changes were made to bankruptcy laws by Congress in 2005. The most prevalent change was to provide more incentive for people to file for bankruptcy under Chapter 13 instead of Chapter 7. With these changes, it’s important to understand the differences between the two types of bankruptcy filings.
Filing bankruptcy under Chapter 7 is a straight bankruptcy. It involves the sale of all assets that are not exempt. Exempt assets may include cars, basic household furnishings and work-related tools. Your property may be sold by a trustee, appointed by the court, and the proceeds turned over to your creditors. Under the new laws, after you receive a discharge, you must wait eight years before you can apply again under Chapter 7.
If you have steady income, you will be able to keep your property such as your house and car. The court will approve a repayment plan so that your future income can repay your debt during a three to five year time span. When you file under Chapter 13 you can repay rather than surrender your property. You will receive a discharge once your debt is repaid.
Both Chapter 7 and Chapter 13 will get rid of unsecured debts. They will also stop foreclosures, repossessions, utility shut offs and garnishments. Both also provide exemptions that allow you to keep specific assets; this information varies by state. Keep in mind that child support, alimony, student loan obligations and taxes are not erased by bankruptcy. There are certain specifications that must be cleared prior to filing for bankruptcy. This may include credit counseling by a government approved organization six months before you file.
Whether illness or unemployment throws your finances into an uproar, filing for bankruptcy is a difficult yet important decision to make. Be sure to speak with an attorney while considering your alternatives.