Declaring Bankruptcy

If you’ve been having trouble paying your bills, are facing repossession, or wage garnishment, you may have considered declaring bankruptcy. Bankruptcy can be a temporary way of stopping these proceedings, and possibly putting a halt to any and all debt collection activity that has taken place from the time you file your bankruptcy petition

As soon as you file, the court will grant you what is known as an “automatic stay.” This means that the creditors that have been hounding you for payments will prevented from contacting you during a specified time period. Creditors you have secured loans with do have the right to take possession of property accordingly.

Chapter 7

Chapter 7 bankruptcy is commonly referred to as a “liquidation” process. What this means is that an appointed trustee is entrusted with selling your assets and distributing payment to all of your creditors. Once this is done, you are discharged of any remaining debts (except for those that cannot be discharged by law). This protects you from creditors making further attempts to collect on the debt. Read more about Chapter 7 here.

Chapter 13

When you declare chapter 13 bankruptcy, you are planning to pay your debts with future income earned rather than liquidating your current assets (as with chapter 7). Your plan will be carefully reviewed for acceptance by the trustee, the creditors and the court. The payment amounts outlined in the plan must match your income. Most payment plans are for between three and five years.

Unlike chapter 2, declaring bankruptcy chapter 13 allows you to keep a good deal of your property. Read more about Chapter 13 here.

Chapter 11

Chapter 11 is for corporations and partnerships. It is essentially a reorganization plan for commercial businesses where the owner prefers to continue running the business, reorganize debts, maintain assets and restructure the business under the court’s supervision.

How Declaring Bankruptcy Affects Your Credit

The truth is declaring bankruptcy will have an affect on your credit record. A bankruptcy usually stays on your record for 10 years. However, not ever creditor will have the same reaction to your status. A bankruptcy does not automatically mean that you cannot get credit. In fact, some companies feel more comfortable extending credit to people who have filed bankruptcy because they know that by law you can only file once  every seven years. For the most part, when you do acquire credit, you can expect higher than average interest rates.