Before the concept of bankruptcy, people who could not meet their
obligations would often face criminal prosecution and jail time.
was conceived to help people recover from debilitating debt without
having to face criminal charges. Each year more than one million
Americans file for protection under Federal Bankruptcy Laws.
Generally, they're average working individuals or families who
have become overwhelmed trying to pay all of their bills. Falling
into debt trouble can happen suddenly. The sudden loss of a job
or income, mounting medical bills, a divorce or even a natural disaster
can quickly wipe out a life's savings. For people who have suffered
such misfortune, bankruptcy provides a second financial chance.
However, a growing number of Americans file for bankruptcy not
from bad luck, but rather because they have lost control of their
spending habits or have willfully abused their credit.
Regardless of why a consumer files for bankruptcy, it is a serious
step with wide ranging implications that should never be taken lightly.
Bankruptcy is a devastating mark on your credit
report that can eliminate credit opportunities for up to ten
years, making it difficult to rent a home and nearly impossible
to find a reasonably priced mortgage.
It should only be considered as a last resort. Lenders will often
work out payment plans for people who continue to show good faith
in attempting to pay their debts even though they may be financially
embattled. If you are still drowning in debt after exhausting all
possibilities of relief, here is what you need to know about the
two common types of personal bankruptcy.
Chapter 7 bankruptcy
Also known as "straight bankruptcy," Chapter
7 bankruptcy allows a consumer to keep certain exempt property
such as work equipment, and some money, clothing, and home equity.
The specific items that are exempt will depend on where you live.
The rest of your possessions and assets will be sold under the supervision
of a federal court trustee. The money raised from the sale will be
parceled out to various creditors. Once bankruptcy is declared, most
creditors cannot seek further payment. However, this does not mean
the person can skip out on all financial burdens. Court ordered alimony
and child support, most taxes and, --under most conditions,-- student
loans will remain after a Chapter 7 bankruptcy.
Chapter 13 bankruptcy
Also known as the "wage-earner's bankruptcy," Chapter
13 bankruptcy allows the debtor to keep his property and negotiate
a three-to-five-year repayment program, which must be approved by
the court trustee.
This article is provided for general guidance and information.
It is not intended as, nor should it be construed to be, legal,
financial or other professional advice. Please consult with your
attorney or financial advisor to discuss any legal or financial
issues involved with credit decisions.