NOTE: It is important to realize that the following pages do not provide legal advice nor claims to be a definitive source for bankruptcy research. This site is not to be cited or used as a legal authority. For a full explanation of the bankruptcy process please visit www.uscourts.gov

INTRODUCTION

Although the option of bankruptcy may seem like a haven for escaping from the clutches associated with debt, it may not always be your best option; it certainly should not be your first. Unfortunately consumers are making poorly informed decisions daily, either because they are not taking the time to understand financial systems or they are just finding it difficult to understand. Always the best option for reducing debt and getting your financial future back on track is self-help. No matter which option you choose to assist you in eliminating your debt one thing always remains the same, you need to change your habits in order to be successful with your debt elimination plan.

DEBT MANAGEMENT MISCONCEPTION

There is no debt management plan that can “cure” your financial difficulties. Whether you choose to settle your debt or file for bankruptcy, there has to be some type of reform otherwise your plan will fail or you risk entering into the same predicament as quickly as you have escaped.

Many individuals have common misconceptions about bankruptcy. Some individuals believe that bankruptcy will clear their slate effortlessly with minor repercussions. Unfortunately that is not the case especially after the amendments to the bankruptcy code were enacted in 2005. Only consider filing for bankruptcy if you cannot afford to make any payments and your creditors have become overwhelmingly persistent.

CHAPTER 7 SUMMARY

Chapter 7 allows for the liquidation of property to make payments to creditors via an assigned trustee. Often, certain property is deemed exempt from liquidation and the debtor retains such property. Creditors with unsecured claims may receive payments from the trustee in charge of the debtors’ estate, if they file a proof of claim to the court. For certain debts a debtor may receive a discharge, freeing them from any liability associated with that debt. Applicants filing for chapter 7 are required to complete a “means test” to determine whether or not they qualify for relief under the chapter 7 filing. This “means test” prevents previous bankruptcy law abuse.

CHAPTER 13 SUMMARY

Even if a debt is discharged, without an automatic stay your home or auto can be repossessed. Chapter 13 allows for a debtor to potentially save their home. You must still pay all mortgage payments on time that come due during the chapter 13 plan. Chapter 13 has some favorable advantages over chapter 7. One of the most desirable attributes is that chapter 13 allows individuals a chance to protect their homes from foreclosure. Excluding primary residence mortgage, chapter 13 allows individuals to extend secured debts over the life of the chapter 13 plan.

THE EFFECTS OF BANKRUPTCY ON YOUR CREDIT

According to the American Bankruptcy Institute, every year over 1.5 million Americans file bankruptcy.*

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CHAPTER 11 SUMMARY

Chapter 11 is reserved typically for businesses. An individual may not file under chapter 11. Furthermore, all bankruptcy applicants must receive credit counseling with 180 days of filing for bankruptcy from an accredited credit counseling agency. Certain types of businesses such as sole proprietorship may use the owner/debtors personal assets to pay creditors. Partners as well may be required to file for bankruptcy. There is typically more responsibility on the debtor’s behalf when filing chapter 11. The debtor must properly report all tax information, accounting information and other documentation pertinent to operations of the business. Also with the court’s approval the debtor may utilize professionals to assist in the bankruptcy procedure such as appraisers, lawyers, tax consultants, financial advisors, accountants and other professional that may be beneficial to the proceedings. A quarterly fee is required in the amount up to $10,000 to be paid to the U.S. Trustee for the life of the bankruptcy under chapter 11. The business may still operate under chapter 11 with of course certain rules and regulations.

The same pressure that you are feeling now from your creditors and collection agencies is a factor in this high bankruptcy statistic. If you ever file bankruptcy, nobody will win. Your credit will be scarred for 10 years and your bankruptcy discharge can also appear in public court records up to TWO DECADES.

THE EFFECTS OF BANKRUPTCY ON BUYING A HOME AND MORE

Bankruptcy could affect you when you try to purchase a home or car, rent an apartment, find employment, obtain insurance, or get a security clearance. Moreover, depending on which type of bankruptcy you file, Chapter 7 or Chapter 13, the courts may force you to make payments to your creditors. You may very well be forced to pay back a portion of the debt with interest. Bankruptcy should be treated as a very last resort!