Bankruptcy
Explained
Many people struggle with debt and
eventually they consider filing bankruptcy. Bankruptcy is
a legal process that allows a person to fix their problems with
debt. The main goal in bankruptcy is to prevent the loss
of assets to creditors.
Two Ways to File
There are numerous ways to file bankruptcy, but the most
common for consumers are Chapter 7 and Chapter 11. Here
is a short overview of the key characteristics of each
Chapter:
Chapter 7
- Debt's are completely wiped out.
- All assets not exempt are sold off and the profits repay the
creditors.
Chapter 11 - A plan is made to repay debts.
- Most assets can be protected and retained by the debtor.
Making the Choice
Choosing between which chapter to file is mainly a matter of
assets. If a person has little or no assets then a
Chapter 7 is likely to be the best choice. However, if a
person has assets they wish to protect, and can afford a
repayment plan, than a Chapter 11 may be the best choice.
New Laws
Under the new laws debtors are required to attend mandatory
counseling. They must attend one class prior to filing
and another class before the bankruptcy is
discharged.
Additionally, there is now a means test. A person can
only file a Chapter 7 if they truly can not afford to pay back
debt.
The Process in Short
Here is a quick look at the process for filing both a
Chapter 7 and a Chapter 11.
Chapter 7
- Debtor takes required credit counseling class.
- Debtor files with court.
- Non-exempt assets are turned over for liquidation.
- Debts are paid with money from asset liquidation.
- Debts remaining are cleared.
- Discharge.
Chapter 11
- Credit counseling class is completed.
- Debtor files with court.
- Repayment plan is constructed.
- Repayment plan is accepted by court.
- Repayment begins.
A Chapter 7 is a brand new start, where a Chapter 11 is more
about protection from creditors. Both will help a person
to clear up their debt problems.
It is wise for a person to choose which chapter they file
after understanding them both. The key is understanding
your assets and the exemptions you can take, so you can be
assured you will not lose something valuable. Bankruptcy
is a legal proceeding and is a very big responsibility.
It will show up on the person's credit report and could prevent
a person form obtaining credit in the future.
For more information, please visit this website for
Bad Debt
Consolidation and how you
can avoid bankruptcy
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