Bankruptcy May Provide Much Needed Relief

It seems that more and more people are simply running out of money between paychecks as the result of sky high energy costs, adjustable rate mortgages and the rising price of food.  With budgets already stretched to the limit, it does not take long to accumulate a significant amount of debt if you lose your income due to illness, disability or unemployment.  If you are someone who has fallen behind and think you are hopelessly in debt, you should consider whether bankruptcy may help you regain your financial footing. 

The major benefit of bankruptcy is that it provides financial relief for people overwhelmed with debt; often through no fault of their own.  We live in a society that seems to have a bias against the filing of bankruptcy; a bias cultivated in large part by a lending industry eager to extend high cost credit.   What most people are not aware of is that the right to obtain relief from debt is a long standing principal that is mentioned in the U.S. Constitution (Article I, Section 8).

What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay their bills can get a fresh financial start.  Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. 

What Can Bankruptcy Do for You?

Bankruptcy may make it possible for you to eliminate the legal obligation to pay most or all of your debts.  This is called a “discharge” of debts and it is designed to give you a fresh financial start.  Many people file bankruptcy as a way to stop foreclosure on their home and to allow them an opportunity to catch up on missed payments.

What are the Different Types of Bankruptcy Cases?

For consumers there are generally two types of bankruptcy cases.

Chapter 7 is known as “straight” bankruptcy or “liquidation.”  It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors.  Generally, those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they can not avoid or afford to pay.

Chapter 13 is a type of “reorganization” used by individuals to pay all or a portion of their debts over a period of years using their current income.  The most important thing about chapter 13 is that it will allow you to keep valuable property--especially your home and car-- if you can make the payments which the bankruptcy law requires to be made to your creditors.  Many people file a Chapter 13 Bankruptcy to stop the foreclosure action on their home. 

What Property Can I Keep?

In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors.  In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. 

Will Bankruptcy Affect My Credit?

There is no clear answer to this question.  Unfortunately, if you are behind on your bills, your credit may already be bad.  Bankruptcy will probably not make things any worse.  The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed.  But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.