Personal bankruptcy generally is considered
the debt management tool of last resort because the results are long-lasting
A bankruptcy stays on your credit report
for 10 years, making it difficult to acquire credit, buy a home, get life
insurance, or sometimes get a job. However, it is a legal procedure that
offers a fresh start for people who can't satisfy their debts. Individuals
who follow the bankruptcy rules receive a discharge-a court order that says
they do not have to repay certain debts.
Two types of Bankruptcy
There are two primary types of personal
bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal
bankruptcy court. The current fees for seeking bankruptcy relief are $160: a
filing fee of $130 and an administrative fee of $30. Attorney fees are
additional and can vary widely. The consequences of bankruptcy are
significant and require careful consideration.
Chapter 13 bankruptcy allows you, if you have a
regular income and limited debt, to keep property, such as a mortgaged house
or car, that you otherwise might lose. In Chapter 13, the court approves a
repayment plan that allows you to pay off a default during a period of three
to five years, rather than surrender any property.
Chapter 7 bankruptcy, known as straight bankruptcy,
involves liquidating all assets that are not exempt. Exempt property may
include cars, work-related tools and basic household furnishings. Some
property may be sold by a court-appointed official-a trustee-or turned over
to creditors. You can receive a discharge of your debts under Chapter 7 only
once every six years.
Both types of bankruptcy may get rid of
unsecured debts and stop foreclosures, repossessions, garnishments, utility
shut-offs, and debt collection activities. Both also provide exemptions that
allow you to keep certain assets, although exemption amounts vary.
Personal bankruptcy usually does not erase
child support, alimony, fines, taxes, and some student loan obligations.
Also, unless you have an acceptable plan to catch up on your debt under
Chapter 13, bankruptcy usually does not allow you to keep property when your
creditor has an unpaid mortgage or lien on it.
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