February 28, 2011
- The decision to file for personal bankruptcy is a choice requiring considerable deliberation. If you are having problems repaying outstanding debts, get the legal advice of an attorney with experience in bankruptcy law. Although expensive, legal representation can be crucial in the courtroom. Review your financial documents, including credit reports, very carefully; many people find charges which can be legally contested and removed entirely.
- Before declaring bankruptcy, individuals have a few legal avenues which they can try in order to reduce their debt load. Along with legally contesting a vague charge, a person may find some success with directly contacting creditors to negotiate a new repayment plan. Many creditors are willing to renegotiate instead of risking losing money owed them if you declare bankruptcy. Enrollment in a debt counseling plan can help you devise a legal repayment schedule with creditors similar to a bankruptcy plan without the bankruptcy. However, if one payment is missed, creditors are allowed to sue. You may even be able to get by without doing anything; some people with little income and assets are deemed “judgment proof” as a creditor cannot obtain any money through suit if it would deprive an individual of essentials such as food or clothing.
- Once a person decides that bankruptcy is his best option, he needs to choose which of the two bankruptcy chapters to file. Chapter 7, known as liquidation bankruptcy, cancels a person’s debts in exchange for relinquishing and sale of nonexempt property to pay creditor claims. In a Chapter 13 bankruptcy, a debtor can keep property such as cars and a home in exchange for submitting to a court-ordered repayment process that lasts three or five years. Not all debt can be discharged at the end of a bankruptcy case. Nondischargeable debt includes such things as: alimony, certain taxes, educational loans, fines for criminal punishments and debts for willful damage to property.
- Choosing bankruptcy eliminates the legal liabilities incurred by your inability to repay creditors, including any lawsuits or wage garnishments. If you are currently being put through, for example, the repossession process on your car, filing bankruptcy stops those proceedings and requires the court to return the property to you. On the negative side, declaring bankruptcy remains on your credit report for up to 10 years, which is three years longer than negative information created through unpaid debts or late payment notices. During this time, insurers and creditors can use this as a reason to deny such things as new life insurance policies or home loans. Finding employment in banking or finance can also become difficult.
Chapter 7 vs. Chapter 13
Pros and Cons
by Ethan Leak