Often filing for bankruptcy is a necessary step in starting over. While no one actually wants to have to file for bankruptcy, it can serve as the right step to getting your financial situation in order. Filing for bankruptcy, can eliminate your debts all together or allow you to repay them under court protection and supervision. These debts generally include credit cards, mortgages, medical costs, and other loans. Other debts, including alimony, child support, taxes, fines, and some student loans are not typically eliminated.
A bankruptcy can stay on your credit file for up to ten years. This can potentially prevent you from buying or even renting a home during the first few years or more after the filing. Additionally, you will likely receive less favorable terms and higher interest rates on credit that is extended to you in general. However, due to the economic conditions, bankruptcy filings are more common and creditors are more understanding. That said, once you file for bankruptcy; begin to manage each of your new or carryover debts very carefully. By paying your monthly bills on time and not over-extending yourself, you will help limit the length of time you are adversely affected.
Primary Types of Bankruptcy
There are various types of bankruptcy, some for individuals and some for companies. The most common bankruptcy for individuals includes Chapter 7 and Chapter 13.
Chapter 7 – This bankruptcy type is known as “straight bankruptcy.” By filing you are agreeing to turn over your non-exempt assets to a Chapter 7 trustee. In turn, the Chapter 7 trustee sells off your assets and distributes the proceeds to your creditors.
Chapter 13 - This bankruptcy type is known as “reorganization.” By filing you are allowed to keep your property, including a mortgaged home or an automobile. It puts you on a specific plan that allows you to pay off your creditors over the course of three to five years with a single monthly payment. This plan is based upon your disposable income; therefore, during this process, it is recommended not to take on any new debt that can affect your ability to stick to this plan.
Filing for bankruptcy can be intimidating or even humiliating for many. However, it is not meant to be. It is meant to help those who are in an extremely difficult plight. Often, those who go through it, never have financial problems again in the future.