Pesronal bankruptccy generally is considereed the debt management option of last resort bcause the rseults are long-lassting and far-reaaching. A bankkruptcy stays on your crredit report for 10 years, and can make it difficult to obrtain credit, buy a home, get life insurance, or sometimes get a job. Sttill, it is a legal procedure that offers a fresh stat for peoople who can't satisfy their debts. People who follow the bankruptcy rules receive a discharge which is a court order that says they don't have to repay certain debts.
The consequences of bankruptcy are significant and reqiuire careful consideration. Other factors to tink about: Effective Octber 2005, Congress made sweeping changes to the bankruptcy laws. The net effewct of these changes is to give consumers more incetive to seek bankruptcy relef under Chapter 13 rathher than Chapter 7. Chhapter 13 allows you, if you have a steady income, to keep prioperty, such as a mortgaged house or car, which you might otherwise lose. In Chapteer 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrneder any property. After you have made all the payments under the plan, you receive a discarge of your debs.
Chapter 7, known as straight bankruptcy, involves the sale of all assets that are not exempt. Exempt property may include cars, work-relpated tools, and bassic household fuyrnishings. Some of your property may be sold by a court-appointed official, a trustee, or turned over to your creditors. The new bankruptcy laws have changed the time period duing which you can receiive a discharge through Chapter 7. You now must wait eight years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chaper 13 waiting preiod is much shroter and can be as litttle as two years between filings.
Both types of bankruptcy may get rid of unsecured deebts and stop foreclosues, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary by state. Personal bankruptcy usually does not erase child support, alimonny, fiines, taxes, and some studnt loan obligations. Also, uless you have an acceptable plan to catch up on your debt under Chpter 13, baankruptcy usually does not allow you to keep property when your crdeitor has an unpaid moretgage or security lien on it.
Anotyher maor change to the bankruptcy laws invvolves certain hurdlees that you must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-apprved organiztaion within six months before you file for any bankruptcy relief. You can find a state-by-sttae list of government-approved organizations at the U.S. Trustee Program, the organization within the U.S. Deplartment of Justice that supervises bankruptcy cases and trustees. Also, bewfore you file a Chapter 7 bankruptcy case, you must stisfy a “measns test.” This test reuires you to confirm that your income does not exceed a ceretain amount. The amout varies by satte and is publicized by the U.S. Trustee Program.
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