Filing for Bankruptcy

Chapter 7 and Chapter 13 are the two main chapters under which individuals can file personal bankruptcy.

Chapter 7 bankruptcy is a liquidation of assets while Chapter 13 bankruptcy is a reorganization where the debtor creates a three to five year payment plan.

1. Learn about it - as shown in this site, there are many facts you must learn about!
2. Consider simpler alternatives - bankruptcy is not always the best option.
3. Make sure you are you eligible!
4. Be sure you understand which debts will and won't be canceled.
5. Consider what will happen to your home - can you keep it?
6. Will you lose your car or other property?
7. Will your credit cards be paid off?
8. Is your pension, IRA, or 401(k) safe?
9. Will cosigners be stuck with your debt?
10. Consider your personal life.

The goal of Chapter 7 Bankruptcy is an organized court-supervised procedure by which a trustee collects the assets of the debtor's estate, transfers them them to cash, and makes payments to creditors paying off as many of your debts as possible.

As a debtor you have some rights to retain certain exempt property. However, there is usually little or no nonexempt property in most chapter 7 cases. Thus debtors with assets that they wish to keep and that are not covered by exemptions are usually better off filing chapter 13 bankruptcy.

Depending on state law certain creditors, referred to as secured creditors, usually have rights that entitle them to be paid first or to receive a higher percentage payment from the remaining assets.

Generally, chapter 13 bankruptcy is preferred by debtors who have a valuable asset, such as a home that they wish to keep (it is possible to keep assets under Chapter 7 - but harder to do).

It is possible to keep some assets because because under Chapter 13 a debtor proposes a plan to repay creditors over a three to five year period during which the debtor can make up overdue payments on any assets. The Chapter 13 plan requires regular monthly or biweekly payments, so Chapter 13 is usually only appropriate for an individual debtor who has a regular source of income.

Chapter 13 is very different from chapter 7, since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor's anticipated income over the life of the plan.

Chapter 13 bankruptcy requires a confirmation hearing where the court either approves or disapproves the plan, depending on whether the plan meets the specific State's Bankruptcy Code's requirements for confirmation. If you work with reputable advisers - most plans are approved by the courts.

Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect which does provide a sense of protection from all the harassing calls and letters from creditors.

Another positive, is that the discharge is also considerably broader. What that means is that in most cases more more debts are eliminated under chapter 13 than under chapter 7.

The two general requirements to participate in a Chapter 13 plan are a regular source of income and the ability to complete the repayment plan within 60 months.

"Income" is considered to be wages, commissions, Social Security benefits, pension/retirement income, child/spousal support, or any other regular, on-going source of funding.

The short answer is - Yes.

The goal and guiding principle of Chapter 13 is to give a person temporary relief from having to pay all creditors in full all at once. The aim is not to seize and liquidate your assets. So long as an acceptable plan of repayment is proposed, and the payments made on a timely basis, you will be able to keep your home and many of your assets.

If you decide that personal bankruptcy is the best option available then you will need to learn all about the federal bankruptcy law and all about the specific bankruptcy laws in your state.

Bankruptcy is an important decision both for your current and future situation. The laws and how the laws apply to you is very complicated. It is generally recommend that one consult with an adviser with experience in the personal bankruptcy field. This can range from attorneys to online bankruptcy services that can be of assistance.

You can complete the bankruptcy forms on your own but this could be very confusing and one should proceed with caution. If you think the IRS forms are complicated, wait till you see the bankruptcy paperwork.

Some of this is on purpose. If the process was amazingly simple with few negatives, people who really don't need to file bankruptcy would try to do so.

Sure a lawyer is your best bet for a bankruptcy, but in most cases other than divorces that is not going to be an affordable option given the situation. However, that does no mean that you should settle for street corner advice.

Make sure that you get advice for a service that

• Has been in business for a number of years
  
• Has advice with situations similar to yours
  
• Is able to outline exactly what services you will get
  Is interested in getting you the best possible terms
  

It may seem hard to spend what little assets you have on a good adviser - but bankruptcy will impact you and your family for years if not decades - rash or uneducated decisions will have a huge impact!