Bankruptcy...the Straight Facts

Bankruptcy is a legal remedy for people who have gotten in over their heads financially and can’t pay their bills. People, for whatever reason, have spent in excess of their income and have no way possible of paying off their creditors. This creates a very tense situation for the debtors. Bankruptcy is the legal solution to the problem faced by many of these kinds of debtors who have no way of paying off their creditors. The solution of bankruptcy represents a form of debt relief and financial management. Bankruptcy isn’t just one kind of filing. There are different kinds of filing for different kinds of situations.Individuals usually file under Chapter 7 or Chapter 13. These are personal bankruptcy files and they differ depending on whether or not there is liquidation of assets.In a Chapter 7 filing, the debtors assets that are not subject to exemption are liquidated by a trustee and the proceeds are used to payoff the creditors. This is referred to as a straight bankruptcy filing. The individual’s assets are liquidated by the trustee and used to pay the creditors. Any remaining debt is written off by the bankruptcy court so the individual in effect, starts over without any debt when the Chapter 7 filing is finished. The individual can only file for chapter 7 once every six years. The whole process is over in three or four months.The other kind of personal bankruptcy filing is a Chapter 13 filing. There is no discharge of debt in a Chapter 13 filing. The debt is reorganized and restructured with a new payment schedule. The restructured debt is then repaid over a three to five year period. This is a period of financial management for the filer. Both Chapter 7 and Chapter 13 filings affect the filer’s credit reports. They bankruptcy shows up on the filer’s credit records for a period of ten years. This makes it more difficult for the filer to obtain credit, like credit cards, car loans and mortgages. It is more difficult, but not impossible and there are things that the filer can do to minimize the amount of time involved and to help repair his credit.Individuals looking to file bankruptcy need to look at state laws to ascertain what assets are and are not exempt since it varies from state to state. Federal rules can also be used. Not all debt is covered in a bankruptcy filing, just unsecured debt like credit card debt and medical bills. Payments for child support, student loans and alimony are not exempt or covered by a bankruptcy filing. Individuals cannot file for Chapter 7 or Chapter 13 without consultation with an approved credit counselor. The credit entity must be approved by the United States Trustee’s Office. This entity will determine whether the individual can file for straight bankruptcy or whether the individual must under reorganization and rescheduling. Debtors cannot just file without the prior consultation with the approved credit entity.

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