 What is Bankruptcy?
Bankruptcy is the legal process of declaring before the court that you are unable to repay the debts you owe. The most predominate forms of personal bankruptcy are Chapter 7 and Chapter 13.
This is the most common bankruptcy filing, also known as “liquidation bankruptcy”. A person's “nonexempt property” (see below) is sold for distribution to the creditors. The debtor then receives a full discharge of all dischargeable debts. In some cases, the following debts are not dischargeable: taxes, spousal and child support, debts from willful and/or malicious misconduct by the debtor, liability for injury or death from driving while intoxicated, debts from prior bankruptcy, student loans and debts that were induced or extended by fraud or criminal activities.
Nonexempt Property:
- Cash, Stocks, Bonds, etc.
- Second home or car
- Collections (stamps, coins, etc.)
- Family Heirlooms (if they have substantial value)
- Cameras/Camcorders (unless debtor is a professional photographer)
- Expensive musical instruments (unless debtor is a professional musician)
Chapter 13 Bankruptcy allows a debtor to retain certain assets that would otherwise be sold in a Chapter 7. Chapter 13 is normally for people who have too much income to file a Chapter 7 or have a large amount of non-dischargeable property. Under Chapter 13, a trustee proposes a 3-5 year repayment plan to the creditors, offering to pay off all or part of the debts from the debtor's future income. The trustee works out how much the debtor can afford to pay each month beyond necessary living expenses. The debtor must have regular income plus disposable income. The disposable income is distributed among the creditors according to what is owed to each by the trustee. If all payments are made, at the end of the agreed upon period, the debtor is discharged from all the listed unsecured debts.
It is true that a bankruptcy will be removed from your credit report in 7-10 years, but it can still haunt you for the rest of your life. Most credit and employment applications will ask “Have you EVER filed bankruptcy?” Answering this question untruthfully is considered a federal offense. This means bankruptcy can make it difficult for you to buy a car, or even rent an apartment or house. It can also affect an employer's decision to hire you. Bankruptcy is a permanent decision that should only be considered as an absolute last resort to resolving your debt issues.
Bankruptcy is the right choice when it is the only choice. If your income is inadequate for you to complete a debt settlement or consolidation plan your only choice may be to declare bankruptcy. |
