Being prepared before filing for bankruptcy can disrupt the pattern of stress and depression that often takes hold in times of financial duress. It is always advised to meet with a financial advisor or credit solutions officer before officially deciding whether or not to file. Bankruptcy can be an effective way to eliminate mounting medical debt, credit card debt, deficiencies from repossession or any other debt that is unsecured. If this is the option that our debt has forced us into we should learn about the process before filing and a big part of that process depends on what chapter bankruptcy is right for our own financial situation.
Which Chapter of Bankruptcy?
Before knowing which chapter of bankruptcy to file for we should get comfortable with what each chapter does to our debt. Choosing the type of bankruptcy that is right for our own personal debt depends on a couple of factors about our debts and assets. The type of debts owed, what our hopes are in filing, our nonexempt properties and income in relation to expenses all come into play when deciding which chapter of bankruptcy is right for our debt.
United States federal law grants a fresh start under Chapter 7 bankruptcy that is typically designed for those with no assets. In filing we are asking the court for a discharge from our creditors. A bank trustee will come and assess and sell all of our available assets and then pay the earnings to our creditors in exchange for the debt cancellation. The downside to filing Chapter 7 is that it will stay on our credit score for 10 years. This credit mark can lead to not getting a job, being denied credit, not being able to rent a house or apartment and even the end of low insurance rates.
Those looking to file Chapter 11 are usually in a situation of corporation, sole proprietorship or partnership debt. It will apply reorganization of debt so that a business can continue to operate while paying out creditors over a court appointed set time frame. The end game in filing Chapter 11 is to eventually turn the business into a profitable venture. This is not a recommended choice for a business that doesn't hold a prosperous future, meeting with a business consultant can help a small business decide if they should persist with bankruptcy or consolidate and sell of the venture.
Chapter 12 & 13
Any of us who has a threat of foreclosure on our homes or repossession on our cars will find Chapter 13 an ideal claim. Chapter 12 is much like Chapter 13 except it also takes into consideration the variable income of farmers and fisherman. A newer addition to bankruptcy law, Chapter 12 protects family fisherman and farmers with proof of regular income in their industries from foreclosure on their properties. These claims will restructure and consolidate our debts and form them into a court appointed payment plan between 3 and 5 years. This is valuable if we hope to keep our property while paying off their debts and simultaneously making the regular payments that the property requires. Another benefit is that the bankruptcy only stays on our credit score for 7 years as opposed to an entire decade with Chapter 7.
Let us be clear, some debt is never discharged in bankruptcy. Spousal support and child support as well as student loans are almost never cancelled after filing for bankruptcy. Tax debts are also very rarely allowed discharge from the government. However, for other types of debt it might be the only viable option to get back on our financial feet.
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