Declaring Bankruptcy: Chapter 7 vs. Chapter 13
The collection agencies are hounding you relentlessly. The calls keep coming in at all hours, your making the best effort to meet the obligations of your various creditors, and you are scrambling to make ends meet. Despite your best efforts, your finances are simply upside down and you are considering declaring bankruptcy. You are aware that it can provide relief and allow you to restructure your debt and settle obligations with the bankers, but is it right for you?
When you are facing the decision to file for bankruptcy it can seem like financial weight of the world is lined up against you, and in some cases upside down obligations and high interest rate debt is.
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Going bankrupt, often first encountered in our youth after a hard fought session of Monopoly, is not the result anyone seeks after pouring so much blood sweat and tears into their fiscal endeavors, but going bankrupt can provide a second chance opportunity to press the reset button on your money matters.
What You Need To Know About Bankruptcy Before You Declare
Filing for bankruptcy has consequences. The acknowledgement that you can no longer pay your bills has an obvious impact on your credit reputation for years to come and can pre-disqualify you for future borrowing opportunities.
I understand fully that in this present moment, crushed by debt, future borrowing is the last thing on your mind but bears taking a moments consideration. Going bankrupt is the single most damaging thing you can do to your credit history and will remain on your consumer credit reports for 7 to 10 years.
There are a variety of alternatives that should be explored before you decide to file to eliminate your debts. For example, there are often opportunities to restructure your debt through consolidation loans, negotiation with your creditors, or to get your finances back on their feet through downsizing and or asset restructuring. The credit impact is that serious, that you will want to be sure that you have explored every possible alternative before declaring bankruptcy.
If having been forewarned, filing still remains your chosen path, the court system provides the following options.
Chapter 7 Bankruptcy
The Chapter 7 is the most common method of going bankrupt, as it can provide the fastest results and is open to be filed by individuals, corporations, married partners, and partnerships. A Chapter 7 is sometimes referred to as a straight bankruptcy and filing begins a court appointed asset managed liquidation proceeding.
After filing you, as the debtor, turn over all property to the court appointed trustee to liquidate into cash in order to pay off your lenders with the proceedings. Following the liquidation of your assets, you will receive a discharge of your debts, typically within a four month period. Following your debtors discharge you have been given a fiscal fresh start to proceed without the onerous fiscal obligations that were crushing you prior to filing. It is important to note that federal, or tax debts are not possible to discharge through bankruptcy.
The Chapter 7 bankruptcy code also provides for a number of asset exemptions that are deemed 'exempt' under Federal and State exemption laws, meaning that you get to keep these assets. Don't be confused, if you owe any money for these assets, like your primary car, your primary home, or other assets that your particular state deems exempt, you will still be obliged to make the payments if you choose to accept the exemption. The assets that are exempted vary from state to state, so check your local laws to confirm what will potentially be protected from your Chapter 7 Bankruptcy.
Chapter 13 Bankruptcy
A different declaring option that is available is the Chapter 13, known as the reorganization bankruptcy. In this case the filer has wishes to pay off their indebted obligations over a period of three to five years. This is an ideal solution for people declaring bankruptcy who wish to protect non-exempt properties while providing opportunity to restructure the terms of obligations that cannot be met as contracted. A Chapter 13 is typically an option chosen by people with a predictable revenue that will allow them the financing flexibility in the coming years to pay off their debts.
Do I Qualify To Go Bankrupt?
There are a few qualifications that must be met in order to file to go bankrupt. Firstly, if you have declared Chapter 7 bankruptcy previously, within the last 8 years, you are prevented from refiling until that period is exceeded. In the case that you had filed for Chapter 7 within the last 8 years but are in dire need of debt relief again, you can file for the more stringent Chapter 13.
The following debts are not available to be discharged and so, if they are the primary reason for your considering filing, dissuade you:
- debt for trust fund taxes
- Criminal restitution
- taxes for returns that were never filed or filed late (within 2 years of the petition date)
- domestic support payments
- taxes for which the debtor made a fraudulent return or evaded taxes;
- Student loans
- Drunk driving injuries
- Civil restitutions or damages awarded for willful or malicious personal actions causing personal injury or death
Rebuilding Your Credit After Bankruptcy
Following a successful discharge of your debts through a bankruptcy filing, you can rebuild. In fact, the federal code that allows you to go bankrupt is intended to provide you a second chance, financially speaking, after being entangled in unmanageable debts. Filing for bankruptcy, and the subsequent successful discharge of your fiscal obligations gives you an opportunity to gain lasting debt relief within a 3 to 5 month period and say goodbye to the harassment of credit collection agencies for good. With time your credit score will improve, bankers will begin to work with you again, and borrowing is not ruled out forever. Get your financial house in order, and re-enter the marketplace with all the additional experience and fiscal wisdom having suffered through a bankruptcy can provide.
For more information on how to maximize your savings when declaring bankruptcy click here: