Personal Bankruptcy Rules

Unfortunately, every year millions of people find themselves unable to pay their debts.  Whether you have racked up student loans, medical bills, or credit card debt, if angry creditors are beating down your door, claiming bankruptcy may seem like the only answer.  This article will hopefully explain all you need to know about personal bankruptcy rules.

First of all, you should know that the consequences of declaring yourself bankrupt are quite serious.  Not only is your credit rating affected for up to 10 years, but it will also be incredibly difficult or even impossible for you to be granted another loan or mortgage in the years following your filing.  It will affect not only your ability to purchase a residence, but even to rent one.  Employers are also sometime uneasy about hiring or promoting someone who seems unable to handle their personal finances.  That being said, wiping your financial slate clean could help you get over a rough patch and start again.  This is especially useful if you have experienced an unexpected business failure or job loss, or perhaps a severe illness that has left you unable to work.  Filing bankruptcy could be the way to help you get back on your feet.

Keep in mind that there are different types of debts and not all of them are able to be written off for good.  “Secured” debts, such as a mortgage or car loan, are not ordinarily discharged unless you surrender the collateral.  This means that you run the risk of losing your assets and/or property.  “Unsecured” debts are considered to be bills and fees for utilities, or legal or medical services.  Make sure to get the advice of a lawyer before filing for bankruptcy to ensure that you are making the right decision based on the kind of debts that you have accrued.

There are two different ways of filing a personal bankruptcy claim: Chapter 7 and Chapter 13 both offer different advantages based on your personal financial situation.

Chapter 7 is the traditional notion of bankruptcy where your assets will be surrendered to a trustee who will sell them in order to pay off your creditors.  The creditors will likely not receive the full amount that they are owed but most of your debts will be discharged, meaning that you will not be liable for them after the bankruptcy has been filed and the creditors dealt with by the trustee.  If your debts are for items that you consider ‘indispensable’, perhaps you should consider other options.  Also, it is unlikely that you will be allowed to file a Chapter 7 bankruptcy if you have already filed or dismissed one in 180 days or if you were granted or denied one within 6 years.

Chapter 13, or the ‘wage-earner’s bankruptcy’, is a plan whereby the debtor has a trustee appointed to collect payments and distribute them to the creditors.  On top of paying the debts accumulated, you will also have to pay the trustee’s fee, which is not cheap.  You should make sure that you set a reasonable amount to pay back each month so that you will actually be able to comply with and after 3-5 years, your debts should have been cleared.  This is a good option if you have debt on indispensable assets or non-dischargeable debt, such as student loans.  However, if you have filed and dismissed a petition in the last 180 days, you will not be eligible to file for Chapter 13 bankruptcy.  You are also ineligible if you have more that $270,000 in unsecured debts and $800,000 in secured debts.

Hiring a lawyer is not a necessary step in filing for bankruptcy, but it is a very good idea.  Qualified bankruptcy attorneys are able to explain the process and the different options that are available to you, advise you at to what the best course of action is, and represent you in court if need be.  Many attorneys offer free initial consultations and it would be beneficial for you to talk to someone about the most common personal bankruptcy rules and the consequences, prior to filing the paperwork. Click on the following link for a free bankruptcy evaluation and to be connected with a reputable attorney in your area.

Click here to find out the answer to the question, “Will bankruptcy affect my student loans?”