Declaring bankruptcy will not be a simple process. In fact, it is very complex and there are different types of bankruptcy.
This article gives a quick summary of what bankruptcy is, it’s purpose and the different types of bankruptcy.
The general concept of bankruptcy is simple. It is a process that was created for those with too much debt.
Bankruptcy exists to help those with overwhelming debt start over. Bankruptcy cancels the debt and/or allows the debtor to pay the amount that they can to a creditor.
When filing for bankruptcy, all pursuits from creditors must stop by order of the court.
A creditor can no longer take any action against the person that files for bankruptcy. This includes not only phone calls and letters but also includes the lack of ability to take any further legal action against the debtor.
The Two Forms Of Personal Bankruptcy
There are two types of personal bankruptcy. One is a chapter 7 and the other bankruptcy is called a chapter 13. Chapter 7 is probably the most common concept of what bankruptcy is and it is also known as a straight bankruptcy.
When filing a chapter 7, one must liquidate all his/her assets to pay back your creditors. There are some items that are exempted from this liquidation like a car, some household goods and tools or equipment utilized for work.
If someone still has a mortgage on a house, the house will most likely also be liquidated.
What Is Chapter 13
With chapter 13 bankruptcy, one doesn’t have to liquidate all of their assets. On the other hand, all the debts from a creditor are not forgiven. A debtor is allowed to create a repayment plan to repay the creditor.
Under this type of bankruptcy it is necessary to liquidate as much as possible to pay off as much debt as possible but it is not necessary to liquidate a home that has a mortgage. The debts that remain after liquidating the maximum amount of assets are the debts that are to be paid off within 3 to 5 years.
Both of these bankruptcy’s stay on one’s record for years. Chapter 7 remains on record for 10 years and Chapter 13 remains on record for 7 years. Even after this time limit, if someone is asked if they have ever filed for bankruptcy, that person is required by law to answer yes.
Bankruptcy is serious business. It has a long lasting and often life altering effect. It is always advised to do all that you can to avoid both types of bankruptcy. There is plenty of free information on the internet.
Simply use a search engine to find the help you’re looking for. You can also check for local listings of people and organizations in your area that can help you figure out if bankruptcy is right for you.
Bankruptcy is not a decision to be made in haste. You need to take your time and talk to multiple people about the possibility of filing for bankruptcy. If you have apprehension or still don’t understand the entire process, get answers. Making a confident and wise decision will help you with bankruptcy in the long run.
You might find the Personal Bankruptcy Laws For Dummies Cheat Sheet a good read.