Whether you hit a few to many “rainy days” in you past such as a job loss or a divorce, or you were simply a little too hap-hazard with credit cards in the past you may be in over your head and wondering which route to take to get out of the red and back on your feet. Between debt management, credit counseling, and the 13 dozen debt consolidation companies out there it can get really overwhelming really fast. Add the option of bankruptcy to the equation and even the most decisive and determined person will be thrown into overload. To ease the confusion, for those seriously considering a bankruptcy declaration, here are some factors to consider when looking into the different bankruptcy chapters.
Chapter 7 bankruptcy has always been the most common among individuals. When filing chapter 7 bankruptcy, as with all chapters, the declaration does stay on your credit report for ten years. During this time you will most likely only qualify for secured, high interest credit cards. Under chapter 7 you can expect all of your property to be liquidated except for some items which may fall into the “exempt” category including tools of one’s trade, a minimal amount of “personal effects”, and sometimes a small amount of home or car equity. Depending on which state you live in filing chapter 7 bankruptcy can often mean losing your home. Chapter 7 bankruptcy is also known as the “fresh start” as in most cases of chapter 7 the debtor is discharged of their liability.
Chapter 13 bankruptcy is often called “reorganizing” your debt. While in chapter 7 most of your property will be sold by your creditors to recuperate some of the cost of your debt, chapter 13 forces you to pay some or all of your debt, usually at better terms or. This type of bankruptcy is more of a form of rehabilitation though it does still appear on your credit report for ten years. Those with an income higher than the median income in your state may be forced to bypass chapter 7 and file for chapter 13 bankruptcy. During the “reorganization” phase, which generally last three the five years, you will be given an allowance by the IRS from your own paycheck. This allowance will have to cover housing, transportation, and some should be allocated to savings, while the rest of the your paycheck will go toward paying down your debt. In many cases a huge change in lifestyle is necessary to accommodate your assigned allowance.
Chapter 11 bankruptcy is more commonly a method reserved for businesses than individual consumers due to the complexity and high cost. Most often a business is still allowed to operate while in the process of filing though it will do so under close supervision. Chapter 11 bankruptcy gives businesses the opportunity to restructure and remove themselves from overly taxing contracts.
Hopefully a clear concise understanding of each bankruptcy chapter will help to put everything in perspective to help guide you on your way to recovery. Filing for bankruptcy, regardless of whether it is chapter 7, 11, or 13, is a huge undertaking. But rest assured, once the papers are signed it’s all about the recovery and in the end it may be the best thing you’ve ever done for yourself and your family.
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