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Bankruptcy Basics

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Understanding the Basics of Bankruptcy

In these tough financial times, more and more people are facing the possibility that they may need to file for bankruptcy protection. Most of us are not very familiar with the facts about bankruptcy and are unsure how it works and how it will help. It is a big decision, and you need all the facts you can gather. Here is some information about the basics of bankruptcy. Of course, it is ultimately a wise decision to discuss your particular situation with a lawyer who can answer questions about your specific circumstances.

Types of Consumer Bankruptcies

There are two types of bankruptcies consumers can file, Chapter 7 and Chapter 13. The main difference between the two is that Chapter 7 allows you to liquidate, or discharge, most of your debts while Chapter 13 requires you to create a plan to attempt to pay back your creditors as much as possible over the next few years; five years is the maximum. At the end of the term, any remaining debt owed those creditors will be eliminated.

How do you determine which form of bankruptcy you are eligible to file? First, talk to an attorney. He will help you establish which option is right for your situation. You will need to take a means test to determine whether you must file Chapter 13. This decision is based on your family income. Even if you qualify for a Chapter 7 filing, you may decide that Chapter 13 is more appropriate for you. Discussing your personal situation with a bankruptcy attorney will allow you to make the most informed decision possible.

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Will All Your Debt Disappear?

That varies according to your situation. Medical bills, credit card debt, installment loans and many other types of debt will be discharged when you file Chapter 7 bankruptcy. If you have a mortgage or a car loan and you would like to keep those assets, you can reconfirm those debts and continue to make payments on them. There are other types of debts that cannot be eliminated by bankruptcy. Those debts include recent tax debt, student loans, damages for drunk driving injuries, child support, alimony and a few others. Your attorney will be able to define those for you.

Bankruptcy Resources

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Is Counseling Necessary?

The way the law is now written, anyone filing for bankruptcy must complete a credit counseling session with a non-profit credit-counseling agency that has been approved by the U.S. Trustee's office. You will need to include a "Certificate of Compliance" from the counseling agency with the paperwork when you file for bankruptcy.

Will Your Credit be Destroyed Permanently?

Not necessarily. Of course, your credit rating will be damaged temporarily, but it doesn't have to do permanent harm. As soon as your bankruptcy is discharged, you can begin to rebuild your credit history. Don't be fooled in to thinking your credit rating is irreparably damaged. Pay all your bills in a timely manner, including things like utility payments and rent. Once you have been able to do that, consider getting a secured credit card to help build your credit references.

Filing for bankruptcy is a serious decision, but it is an option that many consumers are being forced to consider today. If you are trying to decide if bankruptcy is right for you, talk to an attorney to get all the facts.

Bankruptcy Resources

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michaelk08

I am a father of two girls, husband to my gorgeous and talented wife, and an attorney practicing in criminal and family law.

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