A financial crisis can happen to anyone. You may not want to declare bankruptcy, but once you do, you can join the millions of people who find relief from the stress of crippling, insurmountable debt. While there is a stigma surrounding it, bankruptcy shouldn’t be a source of shame or embarrassment. It may be your best option if you are buried in debt. While the process may be challenging, it can give you a chance to get back on your feet and develop a repayment plan without facing aggressive debt collectors.
What kind of debt does bankruptcy wipe out?
Bankruptcy can eliminate “unsecured” debt–such as credit card and medical bills–that is not backed up by collateral (such as a house or car). While it’s in process, bankruptcy’s “automatic stay” halts any lawsuits and most legal actions and debt collection by creditors, government agencies or collection bureaus.
However, bankruptcy can’t be used to pay off all debts. For instance, it rarely eliminates student loan debt and never cancels tax bills, car loans, child support or most mortgages.
Going into bankruptcy greatly impacts your credit score, and the event will stay on your record for 10 years. Still, you can rebuild your credit score by paying your bills on time. Bankruptcy does not prevent you from borrowing money; it just makes it costlier. It may still be possible to get a mortgage or car loan, but it’s likely going be at a higher interest rate.
If you have exhausted all your options and are under severe financial stress, don’t hesitate too long to get help. People who delay filing for bankruptcy until they are hit with lawsuits often have a much more difficult time getting back on their feet.
Chapters
Chapter 7 is designed for individuals, corporations and partnerships in financial difficulty who do not have the ability to pay their existing debts. Under Chapter 7, a trustee takes possession of all the debtor’s non-exempt property, if any, liquidates it for cash and uses the proceeds to pay creditors according to priorities of the Bankruptcy Code.
Chapter 11 allows a business to reorganize and restructure its finances so that it may continue to operate, provide employees with jobs, pay its creditors and produce a return for its stockholders, if any. While chapter 11 is primarily designed for a business it is also available to individuals. In a chapter 11 case the debtor proposes a plan to creditors which, if accepted by the creditors and approved by the court, will allow a debtor to reorganize. A debtor may also propose a plan of liquidation and cease doing business.
Chapter 12 allows family farmers with financial difficulties to repay debts over a period of time from future earnings. In many ways it is similar to a chapter 13 case. The eligibility requirements are restrictive and limit its use to those whose income arises primarily from a family-owned farm.
Chapter 13 enables individuals with regular incomes, under court supervision and protection, to repay their debts over an extended period of time according to a plan. The plan may call for full or partial repayment. Corporations cannot file under Chapter 13 of the Bankruptcy Code.
It is highly recommended that legal advice be obtained from a bankruptcy attorney before filing.
Source: U.S. Bankruptcy Court