The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has changed the process for people who plan to file for bankruptcy but has also added beneficial steps such as credit counseling that will help individuals move forward with a healthy financial future. While the idea of filing for bankruptcy can sound very scary at first, there are a number of situations in which it can not only improve your credit and eliminate your debt but help you eliminate the stress that has been part of your life for so long. If you have ever wondered if filing for bankruptcy under Chapter 7 or Chapter 13 may be the way out of your financial problems, the following information may help you make your decision.
Definition of Bankruptcy
Bankruptcy by definition is a legal proceeding that occurs in federal court during which an individual with a debt that he or she is unable to repay has his or her assets liquidated and is then relieved of further obligation to repay the debt. Chapter 7 bankruptcy involves complete liquidation, while Chapter 13 allows debtors to restructure their debt and repay all or a portion of the amount owed to creditors. The type of bankruptcy that is right for you will depend on your specific financial situation, but generally, people with a regular monthly income source will file for Chapter 13.
Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy proceeding, the court appoints a Trustee who will decide how your assets should be liquidated. In other words, the Trustee may decide to sell things you own to raise cash in order to pay your debts. Some of your debt will be cancelled, but many people choose to pay certain creditors in order to maintain ownership of a home or car for which they owe money.
Chapter 13 Bankruptcy
On the other hand, Chapter 13 bankruptcy is a reorganization of your debt into a single monthly payment. Depending on the amount you owe and the amount you are able to repay, you will make payments for between 3 and 5 years, although the maximum term is five years. You will not be required to repay all of your debt, but you will be asked to pay off as much as you can possibly afford. The minimum payment will vary based on what property (such as cars or a home) that you want to keep. After you complete all of the required payments, any debt you still owe will be discharged and the creditor can no longer seek to collect it.
Advantages of Bankruptcy
There are some advantages to filing for bankruptcy. The primary advantage is that individuals are able to get a financial "fresh start". Individuals eligible for Chapter 7 are generally forgiven the majority of their unsecured debts (such as credit cards). In both types of bankruptcy filings, you may be able to keep many of your assets. Filing for bankruptcy also means that collection efforts will stop, relieving you of the stress of avoiding collection calls and letters. Also, you cannot legally be fired from your job simply because you have filed for bankruptcy.
Disadvantages of Bankruptcy
There are some disadvantages to filing bankruptcy as well. Your credit can be effect for as long as 7 to ten years, although this is often preferable to having your credit effected indefinitely due to late and missed payments. There are a few types of debt that cannot be forgiven, such as child support, alimony, income taxes, and some student loans.
For many consumers, filing for bankruptcy is a way to end the financial difficulties that are preventing them from living the life they want. There are an unlimited number of reasons that people get into debt, and owing money doesn't make you a bad person. Bankruptcy is one way to take responsibility for your debt and move forward with your life without the stress and anxiety that financial difficulties can bring.
