Considering Filing Bankruptcy? An Introduction to Chapter 13 and Chapter 7

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Filing bankruptcy is a big decision.  And once the decision is made, most of you will need to determine whether to file your petition under Chapter 7 or Chapter 13 of the Bankruptcy Code.  This article is intended to provide some introductory information regarding basic bankruptcy concepts and some of the factors you and your attorney will consider when determining if bankruptcy is right for you and which type of bankruptcy is appropriate for your situation.

First, some basics.  The Bankruptcy Code is federal law designed to give the honest but unfortunate debtor the means to obtain "fresh start" by "discharging" or eliminating that debt which simply cannot be paid.  Although some people may feel embarrassed in contemplating bankruptcy for themselves, consider the fact that studies show that most who file for bankruptcy relief have fallen victim to circumstances outside their control, such as a costly medical emergency, a job loss or divorce.  For these reasons Congress has through the Bankruptcy Code provided an orderly and fair way for debtors and their creditors to move on from an untenable situation.  That is, essentially, the relief afforded by bankruptcy.  But bankruptcy is also protective:  once a bankruptcy petition is filed, all collection efforts by creditors is stopped or "stayed" during the pendency of your bankruptcy case.

Bankruptcy Topics Covered

  1. Bankruptcy vs. Other Debt Relief Solutions
  2. How Does Bankruptcy Affect Your Credit?
  3. How Bankruptcy Protects Filers from Creditors
  4. Should You Decide to File for Bankruptcy
  5. Chapter 7 Eligibility and the "Means Test"
  6. Chapter 13 Repayment Plan
  7. Which is Better? Chapter 7 vs. Chapter 13

Bankruptcy vs. Other Debt Consolidation Solutions

You are likely reading this because you are still on the fence about whether bankruptcy is right for you.  It may not be:  you’ve seen the advertisements of credit counseling agencies trying to persuade people who are struggling with their debt that negotiation with each of their individual creditors is a better alternative to bankruptcy, and warning people away from bankruptcy because a bankruptcy filing can remain on one’s credit report for years.

How Bankruptcy Affects Your Credit

First, while it is true that your bankruptcy filing will remain on your credit report up to ten years, how quickly you repair your credit after filing for bankruptcy relief is determined by your payment history from then on, and that, of course, is up to you and how you manage your debts after your case closes.  The mandatory credit counseling and financial management training received as part of your bankruptcy case should assist you, in tandem with the "fresh start."

Only Bankruptcy Can Legally Force Creditors to Negotiate

But second and most important, you should know that no creditor is required to negotiate with you outside of bankruptcy.  Each of your creditors is entitled to be paid in full per the terms of their contracts with you, and has little incentive to negotiate with you unless the law intervenes somehow.   Filing for bankruptcy is the only sure way to stop collection efforts and force creditors to the table.  Moreover, there may be some irreversible action pending against you that bankruptcy could "stay" and give you a last opportunity to remediate:  the automatic stay is a powerful tool that not only gives you some respite from intrusive and annoying collection efforts, but also can under certain circumstances provides reprieve from emergency actions against you such as eviction, foreclosure and repossession actions.

Continued on Page 2: Deciding to File Bankruptcy