| Bankruptcy Basics |
| Written by Joseph Durrett | |
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Individuals will generally file for Chapter 7 or Chapter 13 bankruptcy. Before filing for bankruptcy, make sure there are no other options. Chapter 7 is the most common kind of bankruptcy filing and is often referred to as “personal” bankruptcy. It is generally used by individuals, but some businesses may qualify to file under Chapter 7 as well. Under current United States law, any person filing must receive credit counseling from a person or group approved by the court-appointed bankruptcy trustee to ensure that all other available avenues are reviewed. The law also provides a “means test” to review what capability you may have to repay you debts. If this legal test concludes it is feasible for you to repay, you may be forced to file under Chapter 13, instead of Chapter 7. Chapter 7 can usually be done without a lawyer's assistance, though legal assistance is highly recommended. Under Chapter 7, most of your assets are sold to make partial payment on your debts and the rest are written off, with the creditors being prohibited from seek any further repayment. It can stay on a credit report for up to ten years, though seven is typical. This negative impact can be reduced with some sensible financial practices. Making all bill payments on time can be a large help, as most lenders look to the last year or two as an indicator of creditworthiness. A secured credit card, which is credit backed by a bank account, can also be a large help in restoring credit after bankruptcy. Chapter 13 requires that you follow a court-mandated payment plan to reimburse your creditors for money owed, but does not require the sale of your property and assets. Chapter 11 is mainly for businesses undergoing restructuring and cut backs. It is a very complicated kind of bankruptcy, involving an intricate reorganization of finances and partial forgiveness of debt. The assistance of a licensed attorney who can help with understanding the types of bankruptcy and their legal complications is absolutely necessary for Chapter 11. Chapter 12 is solely meant for family farmers, and it allows them to address debt with a schedule of repayments. Not all legal assistance is created equal. You should retain a lawyer who clearly understands how to file for bankruptcy and how it will affect your credit. Just like you would want a specialist physician to perform a major surgery, you should find specialist help that understands the process and ramifications of your decision. Once assistance is retained, refer all of your creditors to your lawyer. After your case is filed, they may not contact your directly, under threat of financial and legal penalties. If you are considering filing for bankruptcy, do not use your existing credit lines or seek to expand them, or else the court may exempt that “system gaming” from the bankruptcy write-offs. After filing a petition with the court, you will be required to hold a creditors meeting and a trustee will review your assets to determine what is eligible to be sold (Chapter 7) and if you are able to work with a payment plan (Chapter 13). After these steps are finished and the results returned to the court, a decision will be made about what debt should discharge. After that, your creditors have sixty days to challenge the decision regarding any particular account. Before filing, be sure that you have done solid research or acquired the assistance of an attorney. Knowing how to file for bankruptcy and how it will affect your credit before deciding to file can save you a lot of trouble and confusion. |
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