What Is Bankruptcy?
Bankruptcy is a legal declaration that you are unable to pay your creditors. There are two main types of bankruptcy declared by individuals:
1. Chapter 7, which is the most basic form of financial liquidation for individuals. This is the most cut-and-dried version of bankruptcy.
2. Chapter 13, which applies only to individuals. Also known as Wage Earner Bankruptcy, Chapter 13 allows debtors to establish a payment plan to satisfy either part of their debts.
When you declare Chapter 7, you must surrender non-exempt property in exchange for a discharge of your debts. However, some debt such as student loans, some taxes, and spousal and child support is not eligible for discharge. When declaring Chapter 13, you may keep your assets, but are obligated to use some part of your future income to repay creditors over a specified amount of time. This is usually a period of three to five years, and cannot extend beyond five years.
Chapter 13 is more difficult to file than Chapter 7, since in order to qualify you must have regular income and your debts must not exceed a certain amount.
How Do I File Bankruptcy? How Often Can I File?
When you decide to file bankruptcy, research your options and decide which type of bankruptcy is most appropriate to your financial situation. You can file without the assistance of a lawyer, but it is usually recommended to retain legal counsel. Fees vary depending on where you live and your individual situation.
Once you have retained a lawyer, you may refer all creditors to him or her. Once your lawyer submits your bankruptcy petition to the court, there will be a meeting of creditors to review your petition. After 60 days, your creditors may file lawsuits to challenge the discharge of a particular debt. If no lawsuits are filed, you will receive a discharge.
Though you are not limited as to the amount of bankruptcies you may file, there are certain time restrictions for each type of bankruptcy. You may only declare Chapter 7 bankruptcy once in an eight-year period. If you are filing Chapter 13, you cannot receive a discharge if your last discharge was within the past four years.
How Long Does Bankruptcy Last?
Your credit report will reflect Chapter 7 bankruptcy for 10 years and should be automatically removed after that time. Chapter 13 bankruptcy can also remain on your report for 10 years, though it is usually removed after seven years and the amount of time before removal can be negotiated in the bankruptcy settlement.
Keep in mind that your credit report will reflect bankruptcy whether or not it has been fully settled and discharged. However, the effects on your credit will lessen over time as the bankruptcy recedes into the past.
How Do I Avoid Bankruptcy?
Avoiding bankruptcy means keeping up with your financial obligations as they arise. Pay bills on time and keep enough savings in your bank account to handle any financial emergencies.
If you start to find yourself in financial trouble, seek help from a qualified professional. The sooner you address problems with debt, the less likely you are to go bankrupt.