Bankruptcy
You are in a whirlpool of debts and your finances have gone haywire. You no longer qualify for any of the debt relief options. It must be very frustrating but you need to fight back and save yourself from sliding further into a financial catastrophe. So, the financial experts have suggested that you file bankruptcy. Undoubtedly, bankruptcy tarnishes your credit rating but you have to draw a line somewhere. You can’t expect to file for bankruptcy and save your credit rating simultaneously.
Surprisingly, many lenders consider bankruptcy as a “financially responsible” behavior and are convinced that at least you are trying to take control of your finances and in the process preventing yourself from reaching a point of financial insanity. For instance, many payday lenders consider bankruptcy as a responsible decision of debtors facing financial hardship and offer a loan even after bankruptcy
In bankruptcy, both debtors as well as creditors are benefited. The court makes it a point that debtors get debt relief and the creditors get what is due to them. Bankruptcy is a federal court proceeding and excluding exemptions, the law is same in all the states.
In most of the cases, consumers file for either Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Chapter 7 bankruptcy
In Chapter 7 bankruptcy, liquidation of your non-exempt assets take place. The assets are sold by the trustee appointed by the court. The proceeds of liquidation are distributed among your creditors. The New Federal Bankruptcy Law came into effect on 17th October 2005. As per the new law you are supposed to take a means test to decide whether you qualify for Chapter 7 bankruptcy or not. Your income is compared to the median income of a similar household in the state. Individuals, partnership businesses, corporations and married couples are eligible for Chapter 7 bankruptcy.
Chapter 13 bankruptcy
If you are not eligible for Chapter 7 bankruptcy, you qualify for Chapter 13 bankruptcy. In Chapter13, your assets are not liquidated. Instead a repayment plan is worked out so that you can make payments as per the new repayment schedule. You get out of debt within 3 to 5 years. However, you have to provide details of your income to prove that you will be able to repay debts once you are allowed to pay as per a new repayment plan.
With the introduction of the new bankruptcy law, several changes have taken place. It is mandatory to take a credit counseling session at least 6 months before you declare yourself bankrupt. Earlier you could file for bankruptcy as frequently as you desired. In other words, there were no specifications that you have to wait for some time before you can file for bankruptcy again. As per the new law, a considerable time period should have passed before you can file bankruptcy again.
Filing for bankruptcy doesn’t take you to the end of the road. However, you should try not to reach this point and try to settle debts by trying other debt help options. Even if you are a suitable candidate for bankruptcy, there are many ways you can repair your credit rating by showing that you are financially disciplined. The selection to consolidate debt can frequently be one of the quickest and easiest explanations to the anxiety of annoying to pay off frequent creditors.