Filing for Bankruptcy
While filing for personal bankruptcy may be the right financial strategy for some, it is all too often used as a first choice means of eliminating debts without taking the time to consider the long-term consequences that can ensue. In effect, bankruptcy is a legal way for those individuals who have accumulated too much debt to "wipe their financial slate clean" and start anew. However, because there are many long-term and serious consequences that can affect your credit rating and finances for years to come, filing for bankruptcy should only be considered as a last resort after consulting with both a lawyer and a debt counselor to ensure that it is the best option for you. Filing for bankruptcy can only be effected through a lawyer.
Chapter 7 Bankruptcy
The most popular type of personal bankruptcy, chapter 7 bankruptcy allows you to eliminate your debts and start over on the right foot. However, chapter 7 bankruptcy requires that you liquidate all of your non-exempt assets with the money obtained going towards repaying your creditors in order of precedence. That being said, there are certain forms of debt or financial obligations that are not included such as:
- Child support and alimony.
- Student loans and back taxes.
- Large purchases made just prior to filing.
Chapter 13 Bankruptcy
Intended for those who have too much personal income or who want to protect certain assets such as a mortgage on a house, chapter 13 bankruptcy entails the debtor making a legal commitment to repay all or part of his or her debt. In effect, chapter 13 bankcruptcy allows the debtor to renegotiate a more manageable repayment plan that is done under the supervision of a financial trustee. As such, the trustee takes over the reins of your finances until such time as your debt is repaid.
Consequences
Once you have filed for either chapter 7 or chapter 13 bankruptcy, the record shows up on your credit report for up to 10 years and will affect your ability to get a job, establish new credit, obtain insurance or be eligible for a mortgage or personal loan. You will also be required to pay court, filing and attorney fees up front. Because filing for bankruptcy is a civil proceeding, it becomes a matter of public record and may also involve the participation of your employer as deductions may be taken off from your salary. Consequently, filing for bankruptcy is a decision that should not be taken lightly.
Laws Section
Debt Collection Laws
Bankruptcy
Declaring Personal Bankruptcy