Bankruptcy

Bankruptcy is often viewed as the last resort, and it is not the only way to get out from under the creditors and collectors. But sometimes, bankruptcy can be your best option. Like any serious financial matter, Bankruptcy should not be rushed into. And while there are times when it can prove to be the most viable solution, other times it can be a huge mistake. Due to the financial restraits placed upon you after being declared bankrupt, we suggest it should only be used in the severe cases.

As an individual, you may file for two main kinds of bankruptcy, Chapter 7 and Chapter 13.

Chapter 7

A Chapter 7 bankruptcy will clear many, if not all, of your debts completely. It may take as little as three to six months. Chapter 7 is often refered to as "liquidation" bankruptcy becuase while it cancels your existing debt, you must agree to allow the court to sell some of your property to pay back your creditors. The costs for Chapter 7 bankruptcy often average around $300 in filing and administrative fees and generally only requires one visit to the courthouse.

Chapter 13

A Chapter 13 bankruptcy involves an arrangement to use your future income to make payments on your debts over the course of the next three to five years. You don't need to sell any property to file for Chapter 13 but you will be using your own income to pay back your debts. Chapter 13 isn't for everybody. The court will have to determine whether you can make the regular payments. If your income is irregular or just too low, you may be denied Chapter 13.

What you might lose

A bankruptcy will not wipe out all debt. For example, child support debts cannot be canceled. It will wipe out your credit card debt (as long as you didn't spend extravegently or lie on your application) but other debts like alimony, tax debts, secured loans or students will not be cleared.

Don't forget about your home. Bankruptcy will not eliminate your obligation to pay your mortgage but it may make your mortgage easier to pay since you'll be paying fewer bills. If your house has signifcant equity or value, you should be cautious as you may lose it under Chapter 7. (Your home is safe from liquidation through Chapter 13 however.)

How much other property you might lose is contigent on whether you have secured a loan against it as collateral and what the exeption laws are in your state.

Bankruptcy can heavily interupt your personal life. You will be forced to disclose every tiny detail of your finances to the court and people may find out about your situation. You may your own property taken away or you may have to spend three to five years asking permission to spend your own money.