Personal Bankruptcy
Personal bankruptcy is generally viewed as a tool for debt management. However, this should only be resorted to when no other options are available because its effects are wide-ranging and long-lasting. If you file personal bankruptcy, it will take 10 years before it will be erased from your credit report. This will make it difficult to obtain credit from financial institutions, and even sometimes, to land a job.
Despite the disadvantages or stigma of personal bankruptcy, it does offer a legal way to start afresh for people who have no way of paying their debts. When you have fulfilled all the rules of the bankruptcy, the court will authorize the discharge of your debts. This means that you do not need to repay the debts included in a court order.
Personal bankruptcy comes into two basic types: Chapter 13 and Chapter 7. Before you should even consider filing for personal bankruptcy, it is highly recommended that you talk to an attorney. Always keep in mind that the consequences of bankruptcy are significant and they should never be taken lightly.
In Chapter 13 bankruptcy, you gain court approval on a repayment plan to pay off a defaulted debt over a three- to five-year period. For this reason, you are generally allowed to keep property, such as your home which was taken with a mortgage or personal belonging like your car. Chapter 7 bankruptcy, on the other hand, requires that you liquidate assets except those that are exempted by the law. A trustee, or a court-appointed official, may sell or hand over property to your creditors. You can only avail of Chapter 7 bankruptcy once during a six-year period.
According to the latest federal bankruptcy law that took effect on October 2005, individual consumers will find it more difficult to secure a discharge of debt using Chapter 7. This avenue may not be used by those who have incurred primarily consumer debts and whose incomes are above the median income for their state. In these cases, debt repayment is required through Chapter 13 bankruptcy, a route which has also become more onerous for debtors.