Knowing bankruptcy facts becomes essential when you start sensing that your debts are out of control and you are unable to make payments on the time.
While some forms of bankruptcy may allow you eliminate some of your existing debt, the price you pay is high - both emotionally as well as financially.
"The man who never has money enough to pay his debts
has too much of something else."
- James H. Aughey |
The main purpose of filing for bankruptcy is to provide someone who is truly incapable of paying back outstanding debt, a chance to get back in control of their financial life.
While the person may be freed from the majority of their debt, they do not walk away unscathed. They still have a long journey ahead of them.
While the process of bankruptcy is painful and difficult, in some cases it can provide the means to getting out from under the debt trap so many find themselves in.
Hopefully the person will learn from the devastation caused by their past spending behavior and commit to never returning to their old ways.
Types Of bankruptcies (Free Guide: Personal Bankruptcy: Facts You Must Know)
Before you take the final decision regarding filing for personal bankruptcy, you should learn some important bankruptcy facts and figures. There are two distinct types of bankruptcy filings and each has certain requirements and consequences.
The two major types of bankruptcy filings include Chapter 7 and Chapter 13.
The amount of debt outstanding, the kind of debt and your ability to repay the debt are key factors that decide which of these categories you qualify for.
Chapter 7
This is the most popular type of Bankruptcy claim. Very often the claim is a result of habitual overspending or an unexpected illness that results in medical costs that are simply too overwhelming for the patient to ever hope to pay back.
When you file for Chapter 7 personal bankruptcy you can include the majority of your unsecured loans or lines. These include all loans that you have borrowed without offering any kind of security - this is known as unsecured credit.
Credit cards are an example of this kind of credit. One exception to this rule is student loans. While student loans are unsecured, the government will not allow you to include the balance in your filing. Important bankruptcy facts like this one are missed all the time so be sure to know the rules up front before ever filing a claim.
After filing for Chapter 7 all creditors are put on notice and they can no longer make efforts to collect. This will stop all the phone calls and nasty letters. The bankruptcy judge will then decide to what extent your debt is dismissed.
During the assessment a trustee is appointed by the court and becomes the custodian of assets like your vehicles and other secured property. The trustee also oversees the liquidation of certain assets. The money received from liquidation of assets is used for settling the loan amount owed to creditors.
Usually, the bankruptcy process takes up to six months or longer to complete. Knowing this alone is reason enough to avoid credit card debt and possible bankruptcy proceedings, right?
Chapter 13
Bankruptcy facts for this type of filing is a bit different. Chapter 13 allows you to keep personal property but in order to do this you must provide a detailed plan on how you intend to repay all or part of your debts over time.
You must show proof of income so the court can validate your proposed repayment plan. The court will also scrutinize your living expenses and will require that these remain "reasonable".
Wrap-Up
In summary, the main differences between Chapter 7 and Chapter 13 is that Chapter 7 will, in effect, wipe clean all of your "qualified" debts; Chapter 13 provides an opportunity to reorganize your debt in order to repay what you owe to your creditors.
Now that you have the basic bankruptcy facts in hand, let’s think about a better option. Keep in mind that bankruptcy is the last resort and there are other alternatives like making a budget and finding ways of earning additional income and cutting off the expenses that made you cash strapped in the first place.
Bottom line, whatever you decide to do, step up and take 100% ownership of the situation.
Blaming others or crying over spilled milk will only make you look weak and pitiful in the eyes of all parties involved. Mistakes happen, learn from them and you'll be better prepared to overcome any future challenges.
Speaking of being prepared.. check out these free online calculators and educate yourself on possible payment options that can help you payoff existing debt more quickly.
"Creditors have better memories than debtors;
and creditors are a superstitious sect,
great observers of set days and times."
- Benjamin Franklin |
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
