Bankruptcy
What is "bankruptcy"?
Bankruptcy is a way of having all of your debts discharged. Discharged is another way of saying eliminated. So, if you're really in so much debt that you've tried everything else, you've tried to go it alone, you've sought help from a credit counselor, nothing seems to work, you can be relieved of your unsecured debts.That would be debts where there's no property securing them, for example. Credit cards would be a good example of something like this. Bankruptcy would eliminate debt on credit cards.
What debts can bankruptcy cancel?
Bankruptcy can cancel debts that are unsecured by any other property. So, for example, if your mortgage is secured by your home, that can't be discharged in a bankruptcy. Even a car loan is secured by the car so that can't be discharged. But anything that is an unsecured debt can be discharged in a bankruptcy. Also, there are certain debts that people should know can't be discharged in any case, student loans being one of them. You cannot discharge student loans. If you owe Uncle Sam taxes, those can't be discharged and if you owe alimony and child support, those can't be discharged. But, other than that, any debt that's unsecured can be eliminated in a bankruptcy.
What's the difference between "Chapter 7" and "Chapter 13" bankruptcy?
Chapter 7 and Chapter 13 are two different types of bankruptcy. In Chapter 7, whatever assets you may have available are sold to satisfy your creditors to whatever extent that's available. If it's 10 cents on the dollar, that's fine. Whatever can't be satisfied is discharged, you don't have to worry about repaying it. In Chapter 13 bankruptcy, there's a repayment plan. You actually do have to set up a plan, usually lasting from three to five years, that involves repayment of your creditors to a greater extent than in Chapter 7. In Chapter 7, some of your creditors may get nothing. In Chapter 13, there's probably going to be some form of payment to most, if not all, of your creditors.
Who is eligible to file for personal bankruptcy?
Any individual is eligible to file for personal bankruptcy. One thing you need to be aware of though, is that in order to get relief under Chapter 7, which is to get all of your debts forgiven, you do have to meet an income standard. If you exceed this income standard, then you're going to have to file under Chapter 13 bankruptcy, which means there's going to be some sort of a repayment made. Other than that, anyone is eligible to file for bankruptcy.
What assets does bankruptcy status protect?
The assets that bankruptcy status protects varies from state to state. Every state outlines it's own assets, and some are more generous than others. But in general, you really do get a lot of protection.The home equity – the equity that you have in your home – is protected to a certain extent with bankruptcy status. Your car is usually protected to a certain extent with bankruptcy status. You personal property; the theory being that people – debtors or lenders – are not going to recover anything if you can't drive to work and earn a paycheck, or if you don't have a home to live in. And some states are more generous than others; in some states none of your home equity can be tapped in order to pay off your creditors in bankruptcy. So it depends on where you live, but it is true that you'll be able to keep a lot of your assets, that will not be allowed to be sold to satisfy your creditors.
How long will filing for bankruptcy impact my credit rating?
Technically filing for bankruptcy stays on your credit report for 10 years. It is a black mark. It does stay on your credit report. The people who have filed for bankruptcy can very often get credit far before the 10-year period expires. Now, that's a good thing but on the other hand you're certainly not going to get the best rates on your credit. Bankruptcy still is a black mark because it doesn't really look all that good. You may be able to get a credit card, but you're not going to be paying prime rates. You're going to be paying very high rates and it may be more difficult to get other types of loans, like a mortgage for example. Those lenders may be more picky than the credit card issuers are. So bankruptcy is something you should try to avoid even though you probably will be able to get some form of credit before the 10 years expires.
Who should consider filing for bankruptcy?
Anyone should consider filing for bankruptcy if he or she has exhausted every other possibility of getting out of debt, and they just feel they're in over their heads. They've tried to go it alone, that hasn't worked. They've gone to a credit counselor, that hasn't worked. They just want to get this monkey off their back, and they've exhausted every other avenue. Then, I think, filing for bankruptcy is a way of just getting a fresh start.
