The legalities of bankruptcy can be confusing. Let’s discuss a few of the basics to help provide you an overview. Even if you don’t think you ever might need to file, this information can be helpful in general for discussing finances with others or even just reading the paper.
Chapter 13 is the simplest personal type of bankruptcy. It is the mildest; as it helps you pay off some of your debts and allows you to keep certain assets. This kind of bankruptcy is important for home owners, because they will be allowed to keep their house. It protects you from creditors by providing a reasonable repayment plan as you get back on your feet. These plans are determined by the court and usually last three to five years. Once you have completed the repayment plan, you can then be relieved of all remaining debts.
Chapter 7 is the next step up from a Chapter 13. This type of bankruptcy is best for those who either have little to no income or who are significantly in trouble financially. With this plan, you will be required to sell off most of your assets to pay off your debts. But once that is done, most of your remaining debts will be discharged.
You must always file a bankruptcy with a court, there is no other procedure. A recent law in 2005 now requires most individuals seeking bankruptcy to first meet with an approved credit counseling agency. It is critical to always use a good bankruptcy lawyer when dealing with the law. It is complicated and difficult for someone to try and represent themselves. The law will ensure that the lawyer gets her fees before other debts are filed.
While bankruptcy sounds like a great way to erase your debts, it will ruin your credit. The typical Chapter 7 bankruptcy stays on your credit report for 10 years. You can shorten that slightly with a Chapter 13 bankruptcy, which is only on the three main credit bureaus reports for seven years. The reduction is to encourage you to file the reorganization of Chapter 13 rather than the more significant debt elimination of the Chapter 7.
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