Bankruptcy
There are two types of bankruptcy that affect consumers: Chapter 7 and Chapter 13.
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. *
This type of 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. |
Things to Consider
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Before filing, consider all the alternatives
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Taxes, student loans, debt from prior bankruptcy, spouse/child support, criminal fines/penalties and credit card charges made within 40 days of filing cannot be included in any type of bankruptcy
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Bankruptcy may not be necessary if the consumer has no attachable assets or if assets are exempt
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Compare prices as you would with any other major purchase
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Get a second opinion and consider the negative effects of filing bankruptcy
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All creditors will be notified, including landlords or mortgage lenders
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Bank accounts may be frozen or closed
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Credit cards will be revoked
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Significant assets could be claimed, including life insurance policies, pensions or savings
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Psychological stress or depression may be experienced
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It may be difficult to gain employment
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Cost of insurance, both home and auto, may increase significantly
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It may be difficult to obtain meaningful credit
Websites that can provide additional information:
The websites listed are for informational purposes only. Debtscape, Inc. does not endorse nor promote these companies. This information is provided as a courtesy resource, and is not intended to replace consultation with an industry professional.
*Aiello, John et al. (2002). Credit counseling: keys for success. National Institute for Financial Counseling Education, 2nd Edition.