This information is compliments of Financial Education Services and as such may be outdated or have typographical errors.
Be lenient with this writer but know as a client of Financial Education Services, they do follow the letter of the law and work hard with legal counsel to help educate and fight for your legal rights.
So without further adieu, let’s get into “Part 2” of the topic of bankruptcies and if you missed last week, you can read it by clicking HERE.
There are four different types of bankruptcy cases provided under the law:
Chapter 7 is commonly referred to as a straight bankruptcy or “liquidation”. With the exception of taxes, student loans, or debts from fraud, embezzlement or larceny, a large part of your debt may be wiped out, but it’s possible that some of your “non-exempt” property may be sold to help pay off your debts. The recent changes in the bankruptcy law make it harder to qualify for this type of bankruptcy, and it’s likely that you will have to pay your auto loan and some of your old credit card debt. A Chapter 7 bankruptcy may be filed with a company as well, in this situation, the business is forced to close, all assets of the company are sold, and the creditors are paid with the proceeds.
Chapter 11 is used by businesses and is commonly known as “reorganization”. Companies in serious financial trouble may be forced to file for bankruptcy protection with a federal bankruptcy court. Chapter 11 will allow the company to continue to operate while the court structures a repayment plan with the company’s creditors. The court may relieve the company of all or part of its debt.
Chapter 12 is used by the farming community. This bankruptcy law was created to help family farmers keep their land while reorganizing their debts through the bankruptcy court.
Chapter 13 allows an individual with a steady source of income to pay off bills and keep their property under a court-approved repayment plan. This is also referred to as a “wage earner plan”.
What Filing For Bankruptcy Cannot Do
Bankruptcy cannot eliminate child support, alimony, most student loans, criminal fines, certain taxes or any debts that occur after the bankruptcy has been filed.
Bankruptcy does not relieve any cosigners on your debts.
Bankruptcy will also not eliminate your mortgage or any other secured loan, it will only relieve you from other creditor payments so that you may catch up with your secured loans or house payment.
Alternatives To Bankruptcy
The decision to file for bankruptcy has long-term effects on the health of your credit and should be thought through very carefully.
It can stay on your credit reports for a minimum of 10 years and can even be used for a negative credit decision after 10+ years.
The following options may be considered as alternatives to bankruptcy:
Consider finding additional income and cutting expenses. Many individuals have worked a second job in order to pay off credit card debt.
Work directly with your creditors and make new payment arrangements. I recommend getting this in writing.
Get credit counseling to assist with planning and maintaining a budget.
Other Notes Regarding Bankruptcy
Bankruptcy does not disqualify you from Social Security, Veterans Administration, Unemployment, or Welfare benefits.
Recent changes in federal law require that within 180 days prior to the filing of a bankruptcy, you must participate in a budget and credit counseling course offered by an approved non-profit credit counseling agency.
Bankruptcy will not resolve everyone’s money problems, and there are many different reasons to file or not. If you are unsure, get legal advice.
Public utilities cannot refuse or cut off service because you have filed for bankruptcy, however, the utility can ask for a deposit for future service.
A government agency or an employer cannot discriminate against you because you have filed for bankruptcy.
Whew! That was a lot of information and a very heavy topic. As I like to say, knowledge is power and the more you arm yourself the better the decisions you make.
Your Partner in Credit Restoration,
As always, if you have errors on your credit reports or items that do not belong to you and you are not having success getting them removed, please take action and contact me.
For questions or additional resources, please email: Info@CreditGal.CO