The decision concerning filing for bankruptcy protection is one that should not be done in haste. Even though the thought of having all of your bills vanish before your eyes may sound like a dream come true, there’s the aftermath of potential humility, the possiblity of being looked upon negatively be society, and the potential of being turned down for new employment. A lot of work will need to go into rebuilding your credit, because it is crucial to everyday life in this country.
Your credit affects more than just your ability to be approved for a loan or credit card. In fact, interest rates paid on loans by those with a bankruptcy on their record is significantly higher than by those who haven’t. Don’t forget about insurance coverage, as a bankruptcy will affect those rates, too.
Now that you are somewhat aware of the potentially devastating after-effects of filing for bankruptcy, there is one pertinent item you need to consider while traveling along the road to the federal courthouse; which type of bankruptcy you want to file.
There are three MAIN types of bankruptcy protection: Chapter 7, Chapter 11 and Chapter 13. There is also chapter 12, but it’s solely for the use of farmers. If you’re a farmer, good for you! If not, you’ll need to stick with Chapters 7, 11 & 13.
Chapter 7
Chapter 7 is the most used by individuals, because it simply wipes all of your debt away with no need to repay. It provides an “Order of Relief” for individuals harassed by creditors, so they cannot touch you or your property outside of the bankruptcy proceeding in court.
All assets are to be liquefied and paid to your credits accordingly by the court trustee. You are allowed to keep an “Exempt Property” that differs by each filer’s state legislation.
Chapter 11
Chapter 11 is, simply stated, asking your creditors to back off for a bit while you try to regroup your finances. A creditor “hiatus” or “vacation” is another way to put it, for you will eventually be responsible for paying your debts. Not all circumstances fall into the category of Chapter 11.
If you file, you will be considered the debtor in possession. This means that you will remain in full control of your assets throughout the reorganization process that Chapter 11 requires. When making your petition, you must provide the following information to the court:
- debtor’s (your) name.
- social security or tax ID number.
- residence or where the assets are located (if a business)
- your plan (or intent to file a plan)
- request for relief under the bankruptcy code.
Chapter 13
Chapter 13 is a way in which a debtor filing for bankruptcy wishes to repay their debt. The debtor submits a payment plan to the bankruptcy court, typically lasting 3 to 5 years, all while paying as little as pennies on a dollar. The court will issue an automatic stay to stop creditors from calling and/or garnishing your wages.
Due to recent changes in federal law, filing for bankruptcy requires a few steps be taken to try to clear up your debt on your own prior to filing for bankruptcy relief. Be sure to check with your local state legislature as to the regulations for filing for bankruptcy protection in your state.
