Filing for Bankruptcy: Can You Really Alleviate Your Debt? |
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For those who have no other way to repay their debt, bankruptcy is a last resort. Every year, more than a million people file for personal bankruptcy to save them selves from drowning in debt. However, filing for bankruptcy is not simple task.
To file for bankruptcy, a debtor must first file a petition with a federal bankruptcy court. The court appoints a trustee, who oversees your case with your creditors and allows an automatic stay order, which holds them back from seizing your bank accounts and repossessing your vehicle or house. Types of Bankruptcy There are two types of bankruptcy that one can file for: 1) Chapter 7, or straight bankruptcy, 2) Chapter 13, or wage-earner bankruptcy. These operate in the following manner: Chapter 7: Liquidation An individual or business can request the court to eliminate their debts. After filing details of your property, income, and basic monthly expenses, you attend a hearing with your trustee. This meeting will decide which non-exempt property will be sold to arrange for the proceeds that will go toward paying off creditors. Depending on the state where you live, your property will be partially exempted, such as total equity of your home, life insurance, retirement plan assets and most furniture and household goods. Chapter 7 bankruptcy takes six months and costs $175, which is waived for people on public assistance or below poverty level. If already applied for in the last six years, or if someone co-signed a loan for you, or if you landed a luxury debt (a vacation) after filing, you're not eligible to apply again. If the court feels that you are capable of repaying your debt in the next five years, they could recommend your case for Chapter 13 instead. Chapter 13 A steady high enough income to cover monthly expenses and dues is a prerequisite to qualify and then there is a fixed repayment plan to pay off debts over the next five years. The filing fee is $160. Payments are made to your trustee, who pays your creditors. Secured debts (home and car loans) must be under $750,000. If your unsecured debts (credit cards, department store cards, medical bills, student loans) are under $250,000 you can still keep your property. What to do? Bankruptcy can have a damaging effect in the long run. You could still be feeling the fallout on your credit report for up to 10 years, even if you don't go through with the process. Sometimes bankruptcy shows up in your records even longer, such as when applying for a high-salaried job or insurance above a certain figure. Bankruptcy reflects that you're incapable of good financial management. Alternatives to bankruptcy include negotiating with creditors or seeking help from debt-management counselors. Where to Find Help Many non-profit organizations offer guidance and information for free. Always seek help before filing for bankruptcy and from either of these: ? Consumer Credit Counseling Service ? American Consumer Credit Counseling ? Association of Independent Consumer Credit Counseling Agencies ? National Association of Consumer Bankruptcy Attorneys Now, do you think you really need to file for bankruptcy ? |
