Bankruptcy is a proceeding made in court by those who feel they cannot repay 

their creditors. This results in a court judgment that decides what a person should or shouldn’t pay back.

There are three types of Bankruptcy named after the Chapters in the corresponding Code.

Chapter 7 – is liquidation of a person’s assets, also known as ‘straight’ bankruptcy. This is where someone liquidates or sells all their assets and distributes the money to the creditors or lenders. The outstanding debts which are left after liquidation are those that cannot be discharged after bankruptcy such as child support, alimony etc. Tax also has to be paid after filing for bankruptcy although payments can be stopped while the bankruptcy claim is being made.

Chapter 11 – This is a reorganization of a debtor’s assets and payments. This enables a person to remain in business such as those in commercial enterprises, retain their assets and have their finances reorganized by the courts. 

Chapter 13 – This is where a person that owes creditors or lenders have to make a plan to repay them over a period of time of no longer than 5 years. The creditors, courts and the trustee will review the plan and either approve it or request the period is shortened. This is available to those who have unsecured loans such as credit card debts of up to $100,000 or mortgage loans up to $350,000. The amount which has to be repaid must equal that which would normally be repaid under a Chapter 7 filing and consider what the person’s income was.

Filing under Chapter 13 means that the person who is filing for bankruptcy can keep much of their property and assets although the bankruptcy claim would still appear on their credit history. Filing under Chapter 13 also means that the debtor is kept to their repayment plan and if they fail to repay the debts at the end of the term then the creditors can file bankruptcy under Chapter 7.

So is this a way out of debt? This depends entirely on the financial situation a person is in. After filing for bankruptcy you may be able to relieve yourself of a lot of financial debt. However, you may also lose most of what you own in the process.

Filing for bankruptcy leaves a mark on a person’s credit history that can make it extremely difficult to get credit from lenders. 

Bankruptcy can be a formal way for a person to take control of their finances so that they can repay their creditors over a longer period of time. It can feel like relieve after struggling with debt for so long, but it can also be a financial burden that makes rebuilding you credit a long uphill struggle.

20000 Credit Card Debt.com
Copyright 2008

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