- What is bankruptcy? Are there different types?
- What is the difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy?
- Why shouldn't I file bankruptcy?
- How do I know if bankruptcy is my best option?
- How will bankruptcy affect my credit?
- What types of debts CANNOT be included in bankruptcy?
- What is exempt from bankruptcy?
What is bankruptcy? Are there different types?
Bankruptcy is a legal proceeding in which a debtor is absolved of, or receives a reduction in, any qualified unpaid debts. There are two types designed for consumers - Chapter 7 and Chapter 13.
What is the difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy?
Chapter 7 Bankruptcy:
Chapter 7 completely absolves the consumer from unsecured debt. It allows almost all unsecured debts to be completely discharged. The debtor loses all property except that which is exempt by law (varies by state). A consumer should seek the advice of an attorney to determine which items are exempt. Necessary items such as car and home are usually exempt. Once the bankruptcy is discharged, the consumer will not have any debt from anything filed under that specific bankruptcy. *
Chapter 7 bankruptcy can only be filed once every seven years and remains on the credit report for a period of ten years.
Chapter 13 Bankruptcy:
Chapter 13 is for individuals who wish to repay their debts and seek court protection while they negotiate a plan of reorganization with their creditors. This is an alternative to Chapter 7 bankruptcy and is designed for "wage-earners." The plan is usually for a period of three years, unless otherwise approved by the courts, but not to exceed five years.
Chapter 13 bankruptcy can be filed during any difficult financial situation. The information remains on the credit report for a period of seven years if discharged, ten years if dismissed.
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Discharged: Once a debtor has satisfied the Chapter 13 payments, the court will order a termination of the proceedings, usually relieving the individual of the obligation. A discharge will remain on the report for seven years.
Dismissed: When a debtor fails to make payments on a Chapter 13 plan, the bankruptcy court will dismiss the debtor. All creditors will then have the same rights to pursue the debtor as before the filing of the Chapter 13. A dismissal will remain on the report for ten years. |
*Aiello, John et al. (2002). Credit counseling: keys for success. National Institute for Financial Counseling Education, 2nd Edition.
Why shouldn't I file bankruptcy?
Bankruptcy should always be a last resort. In the short term, bankruptcy sounds good to many people. After all, what could be better than having the majority of your debt wiped clean? The problem is that creditors have very good memories, and your bankruptcy will appear on your credit report for at least ten years. Be sure to ask your Certified Credit Counselor for more information.
How do I know if bankruptcy is my best option?
Filing for bankruptcy is a serious decision and should be used as the last available option after the alternatives have been ruled out. Consult with one of our Certified Credit Counselors to see if there are other options available to you. If you have already decided to file bankruptcy, consult an attorney.
How will bankruptcy affect my credit?
Your credit will be damaged for a period of seven (7) to ten (10) years, depending on which one you file. You may be able to obtain credit after filing bankruptcy, but the interest rates will be very high and will cause you to pay much more for an item than the original cost of purchase.
In addition, filing for bankruptcy may have other serious ramifications.
- Assets could be claimed, including life insurance policies, pensions or savings
- Psychological stress or depression may be experienced
- It may be difficult to gain employment
- Cost of insurance, both home and auto, may increase significantly
Consult an attorney for more information.
What types of debts CANNOT be included in bankruptcy?
Some types of debts cannot be included in bankruptcy, including taxes, student loans, debt from prior bankruptcy, spouse/child support, criminal fines/penalties, and credit card charges made within forty (40) days of filing.
What is exempt from bankruptcy?
A consumer should seek the advice of an attorney to determine which items are exempt. Usually, necessary items such as car and home are exempt. Exemption regulations vary from state to state.
Ctrl. 32 Rev. 6 11.15.04