How To Take The First Step Toward Bankruptcy

By preparing before filing for bankruptcy, you can break the cycle of stress and depression that often occurs during times of financial hardship. We always recommend speaking with a financial advisor or Credit Solutions representative before officially deciding whether to apply. Bankruptcy can be an effective way to eliminate mounting medical debt, credit card debt, foreclosure deficits, and other unsecured debts. If our debt forces us to make a choice, we need to educate ourselves about the process before applying. A large part of the process will depend on which chapter of bankruptcy is appropriate for our own financial situation.

Which chapter of bankruptcy? Before you know which chapter you should file for bankruptcy in, you need to understand how each chapter affects your debts. Choosing the right type of bankruptcy for your personal debts depends on several factors related to your debts and assets. The type of debt you owe, your wishes at the time of filing, your unexempt assets, and your income relative to your expenses will all be considered when determining which stage of bankruptcy is appropriate for our debts.

Chapter 7

U.S. federal law provides for a Chapter 7 bankruptcy restart, which is typically for people with no assets. By motion, we ask the court to discharge our creditors. The bank trustee will value and sell all of the company's available assets and pay the proceeds to creditors in exchange for debt forgiveness. The disadvantage of filing for Chapter 7 is that it remains in our credit for 10 years. This credit score can prevent you from getting a job, getting credit, renting a house or apartment, and even lowering your insurance premiums.

Chapter 11

People who wish to file for Chapter 11 are typically in a corporation, sole proprietorship, or partnership status. Debt restructuring is used to allow companies to continue operating while repaying creditors within court-set deadlines. The ultimate goal of filing for Chapter 11 is to eventually turn your company into a profitable business. This is not recommended for companies that have no hope of future success. Meeting with a business advisor can help small businesses decide whether to pursue bankruptcy or consolidate and sell their business. Chapters 12 and 13

For those of us facing home foreclosure or car repossession, Chapter 13 is an ideal claim. Chapter 12 is similar to Chapter 13, but also takes into account the variable income of farmers and fishermen. Chapter 12 is a recent addition to the Bankruptcy Code that protects family fishermen and farmers from seizure of their property if they can show proof of regular income from the industry. These claims will result in our debt being restructured and consolidated into a court-determined three- to five-year payment plan. This can be valuable if you want to hold on to the property while paying off your debt and making the regular payments required by the property. Another benefit is that the bankruptcy will only stay on his credit score for 7 years, whereas a Chapter 7 will be for a full 10 years.

Be clear: some debts will not be permanently discharged even if you file for bankruptcy. Spousal support, child support, and student loans are rarely canceled after filing for bankruptcy. Tax debts are also rarely paid by the state. However, for other types of debt, this may be the only viable option to get back on your feet.

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