Bankruptcy - The last option for debt problems

By Good Nelly

Ask Nelly

If you are suffering from debt problems and are unable to get out of it through hardship programs or debt relief programs such as credit counseling, debt settlement, debt consolidation, debt management, etc. then you can file bankruptcy. If you want to know what bankruptcy is all about and how it can help you, check out the topics given below:

• What is bankruptcy?
• Why do people declare bankruptcy?
• What are the different types of bankruptcies?
• Who can file bankruptcy?
• Does bankruptcy discharge all of your debts?

What is bankruptcy?

Bankruptcy is a federal court procedure that is designed to aid businesses as well as the consumers to wipe out their debts or repay them under the protection of the bankruptcy court.

Why do people declare bankruptcy?

Here are the 2 reasons why people file bankruptcy:

• Fresh start: Bankruptcy allows debtors to discharge their debts and have a fresh financial start. They can pay off their debts either through Chapter 7 (straight bankruptcy) or Chapter 13 bankruptcy and avoid being sued by the creditors. Apart from that, individuals who are on the verge of losing their home to foreclosure can avoid it through Chapter 13 bankruptcy. Moreover, bankruptcy allows the individuals who have defaulted on auto loan to prevent their car from being repossessed.
• Careless mistakes or other decisions that went wrong: These are the reasons for personal bankruptcy that stem from our own irresponsible behavior. Loss of self restraint, gambling, extravagant lifestyle, bad investments, divorce or may be bad relationships can lead to overwhelming financial problems.

In the last few years, the number of bankruptcy filings has increased at an alarming rate. In the year 2009, the total number of bankruptcy filing was 1,306,315. Now that's quite a number!! Just look at the table below and check out the number of bankruptcies filed in 2005-2010.

What are the different types of bankruptcies?

The 3 different types of bankruptcies are given below:

1. Chapter 7

Chapter 7 is also known as a straight bankruptcy or liquidation proceeding. As per this chapter, the debtors are allowed to keep certain type of property, this kind of asset is known as exempt property and the property they must give up is known as non exempt property. When you file a petition for Chapter 7 almost all your debts are discharged in exchange of certain property. In Chapter 7, all your non exempt property is handed over to the court appointed trustee who in turn sell some of these assets and distributes the cash to the creditors. Know more...

2. Chapter 13

Chapter 13 is also known as reorganization where you file a repayment plan with the bankruptcy court proposing how you will repay your defaults to your creditors. The amount of money you'll have to repay depends on how much you earn, the amount of debt you owe, the types of debt you have, and how much property you own. In a Chapter 13 bankruptcy, you don't have to hand over any of your assets to discharge your debts, but you must utilize your income to pay off your debts over 3-5 years, depending on the amount of your debts and your income. Find out more...

3. Chapter 11

   Chapter 11 bankruptcy is also known as reorganization bankruptcy. This type of bankruptcy helps the businesses/corporations to repay the outstanding loans by reorganizing their debts through negotiation. Reorganization is primarily done by permitting businesses to discard troublesome contracts and to pay the collateral value to the secured creditors. Unsecured creditors can be paid less than the total debt amount. Thereby, the businesses can run successfully and employees will not lose their jobs.

Who can file bankruptcy?

Individuals who can file bankruptcy are given below:

• Individuals as well as businesses may file bankruptcy.
• In certain incidents, a creditor (can be a person or business) who owes money through an involuntary procedure may force the filing of a bankruptcy proceeding. However, this is a very rare case.

  Does bankruptcy discharge all of your debts?

  When you file for bankruptcy it will discharge all your debts, so that no further legal action can be taken against you on those debts. However, bankruptcy be it chapter 7 or 13, does not discharge all of your debts. It is also a fact that if you file Chapter 7 bankruptcy, you may have to sell your cherished house when they are not eligible for Federal or state exemptions. Due to this reason, financial experts often advise individuals to avoid bankruptcy.

  Useful sites:

  1. http://www.uscourts.gov/bankruptcycourts.html