Bankruptcy Stereotypes and the Truth
News of an individual or corporation filing bankruptcy can evoke unfair negative stigmas. This critical view of bankruptcy is most often based on a very loose definition of the term as well as general ignorance regarding its potential results. Upon digging deeper for bankruptcy’s true meaning, the ensuing revelation may be that it actually can be a responsible approach for some people seeking debt-relief.
Chapter 7 Bankruptcy: The Debt Discharge
There are two main forms of personal bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy.
Chapter 7, the U.S.’s most common form of bankruptcy, is typically filed in a federal court when an individual or business facing a great deal of debt is unable to pay it.
A successful Chapter 7 bankruptcy results in the Chapter 7 debt discharge, which eliminates the filer’s unsecured debt, such as:
- credit card debt
- payday loans
- personal loans
- utility and medical bills
Keep in mind, a person must prove eligibility to file Chapter 7 bankruptcy.
In general, that means they must typically make less than their state’s minimum income level.
Chapter 13 Bankruptcy: The Wage Earner’s Repayment Plan
Chapter 13 bankruptcy, also known as the wage earner’s plan, is often an option suitable for those facing foreclosure or looking to reorganize finances within the confines of a court-approved, debt repayment plan.
Supervised by a federal court, Chapter 13 bankruptcy gives some income-receiving debtors the ability to:
- stop foreclosure
- silence creditors
- get on a more realistic, interest-free debt repayment plan
- possibly receive a discharge from unsecured debts
At the beginning of the Chapter 13 repayment period, which normally lasts three to five years, a court-appointed trustee is assigned to an individual case and thereupon acts as the go-between for the debtor and creditors.
The trustee receives a set monthly payment from the debtor to give back to creditors regularly or as specified in the court-ordered plan.
Exceptions to these payment types are current mortgage payments and some leases. At the completion of the plan, debts are usually discharged, or legally forgiven.
Once the discharge is entered by the court, no creditor who had notice of the bankruptcy can attempt to collect debt unless it is categorized as “non-dischargeable”, examples being some forms of criminal restitution, domestic support or student loans still not paid in full.
With every year that passes after filing for bankruptcy, its impact on a credit report is typically viewed with less scrutiny.
Is Bankruptcy Good for Me?
With the massive unemployment rate, low credit availability and the off-the-chart numbers of foreclosures, more and more people are finding that filing bankruptcy is the right choice for them and their financial futures.
If you’re bombarded by bills and are looking for a way out, filing bankruptcy might be an option for you.
Keep in mind, filing bankruptcy isn’t right for everyone, and you should carefully weigh your options before making any financial decision.
We’ve put together some bankruptcy information below to help you determine whether bankruptcy could be a debt-relief option.
What is Personal Bankruptcy?
Personal bankruptcy is a legal process provided by the bankruptcy court that was designed to offer a discharge (elimination) of debt through Chapter 7 of the U.S. Bankruptcy Code or a reorganization of debt under Chapter 13.
Rebuilding Credit After Filing Bankruptcy
Credit is an important part of our society. It’s difficult to make any major purchase, like a house or car, without decent credit. Credit is a major component to good financial health.
After you file bankruptcy, you’ll probably want to start working on improving your credit rating.
Ask a bankruptcy lawyer (for free) how bankruptcy may help or affect your credit.
Scams to Avoid when Rebuilding Your Credit
In your haste to rebuild your credit, you may be tempted to try anything that promises to get you back on your feet again after filing for bankruptcy. Be very careful! There are many scam artists out there that know your situation, and they will promise you all sorts of ways in which they can magically repair your credit and get you on your feet again after bankruptcy.