Bankruptcy: The Easy Way Out?

If you have overwhelming debt and see no way out from under, you may consider bankruptcy as an option. Depending on the type of bankruptcy action you choose, you may have your debts discharged or restructure your debt to make it more manageable. Bankruptcy also temporarily stops debt pursuit actions by creditors.

What Bankruptcy Can Do

When considering bankruptcy, you need to know exactly what it can do for you. Below are just a few of the benefits of bankruptcy:

• Stops debt collection harassment
• Stops immediate foreclosure of your home and allows you time to catch up on back payments
• Stops wage garnishments proceedings
• Stops your car or other property from being repossessed or, in some cases, forces a creditor to return property after repossession.
• Discharges your legal obligation to pay most or all of your debts

What Bankruptcy Can't Do

However, there are certain things a bankruptcy cannot do, including the following:

• Discharge certain types of debts, such as child support, alimony other divorce-related debts, most student loans, criminal fines and restitution, and most state and federal taxes
• Eliminate certain secured debts such as car loans and home mortgages. Bankruptcy allows you to pay these off over a certain period of time. You may only retain the collateral if you continue to pay the debt.
• Discharge debts that arise after the bankruptcy has been filed

Which Bankruptcy to Choose

The most filed personal bankruptcy actions are Chapter 7 and Chapter 13. Deciding which is the best for you depends largely on what you want to do. If you want to pay off creditors and ultimately discharge your debts, you should seek a Chapter 7 liquidation. However, if you want to keep your assets and satisfy your creditors, and basically catch up on debts in arrears, you may consider filing Chapter 13. Below are summaries of each proceeding.

Chapter 7

Known as the "liquidation" bankruptcy, Chapter 7 gives you a "fresh start" and allows you discharge your debts. In a Chapter 7 proceeding, non-exempt property must be turned over to a bankruptcy trustee. The trustee will sell off the non-exempt assets and distribute the proceeds to your creditors. Under Chapter 7 you are allowed to retain certain exempt property that is provided by federal and/or state laws. Exempt property may include secured debt, homestead, personal property such as clothing, jewelry, real property, tools of trade, the face value of insurance policies, and certain retirement funds and annuities.

Chapter 13

Chapter 13 allows you to restructure or "reorganize" your debt while retaining all of your assets. However, you must have a certain wage level and must not exceed a certain amount of secured and unsecured debt. You must also be able to pay off your creditors within three to five years.

Bankruptcy and Your Credit Rating

When considering bankruptcy, you should know that filing for bankruptcy will remain on your credit report for 10 years. However, if you are already in debt, late payments and unpaid debts will remain on your credit report for 7 years. Filing bankruptcy may not prohibit you from getting some credit in the 10 years; however, you will have to pay higher interests than if you had not filed.

Find an Attorney

Finding an experienced attorney will help facilitate a successful bankruptcy. He or she will aid you in filing the requisite paperwork, gathering all relevant documentation, and representing you during each phase. Factors that affect the facilitation include your level of debt and your number of assets. Talk with an attorney skilled with bankruptcy proceedings to help you have an easy bankruptcy.