The Pros and Cons of Filing For Bankruptcy

Before you resort to filing for bankruptcy, consider the alternatives. Creditors might be willing to settle their claim for a smaller cash payment, or they might be willing to stretch out the loan and reduce the size of the payments. This would allow you to pay off the debt by making smaller payments over a longer period of time. The creditor would eventually receive the full economic benefit of its bargain.

Occasionally, you may “buy time” by consolidating your debts; that is, by taking out a big loan to pay off all the smaller amounts of debts that you owe. The primary danger of this approach is that it is very easy to go out and use your credit cards to borrow even more.

In that case, you end up with an even larger total debt and no more income to meet the monthly payments. Indeed, if you have taken out a second mortgage on your home to obtain the consolidation loan, you might lose your home as well.

When there really is no other way out, you’ll need to file for a Chapter 7 personal bankruptcy. Try looking at it in a positive light, however.

Advantages to Filing for Bankruptcy

By far the most important advantage is that debtors may obtain a fresh financial start. Consumers who are eligible for Chapter 7 may be forgiven (discharged from) most unsecured debts.

A secured debt is one which the creditor is entitled to collect by seizing and selling certain assets of the debtor if payments are missed, such as a home mortgage or car loan. With those two major exceptions, most consumer debts are unsecured. You may be able to keep (that is, exempt) many of your assets, although state laws vary widely in defining which assets you may keep.

Collection efforts must stop as soon as you file for bankruptcy under Chapter 7 or Chapter 13. As soon as your petition is filed, there is by law an automatic stay, which prohibits most collection activity.

If a creditor continues to try to collect the debt, the creditor may be cited for contempt of court or ordered to pay damages. The stay applies even to the loan that you may have obtained to buy your car.

If you continue to make payments, it is unlikely that your creditor will do anything. However, if you miss payments your creditor will probably petition to have the stay lifted in order either to repossess the car or to renegotiate the loan.

You cannot be fired from your job solely because you filed for bankruptcy.

Disadvantages of Filing for Bankruptcy

Of course, there are disadvantages to filing for bankruptcy. Since your bankruptcy filing will remain on your credit record for up to ten years, it may affect your future finances. A bankruptcy is a troublesome item in your credit record, but often debtors who file already have a troublesome history.

In one respect, bankruptcy may improve your credit records. Because Chapter 7 provides for a discharge of debts no more than once every eight years, lenders know that a credit applicant who has just emerged from Chapter 7 cannot soon repeat the process.

Research in this area has produced mixed results. A study by the Credit Research Center at Purdue University found that about one-third of consumers who filed for bankruptcy had obtained lines of credit within three years of filing; one-half had obtained them within five years.

However, the new credit itself may reflect the record of bankruptcy. For example, if you might have been eligible for a bank card with a 14 percent rate before bankruptcy, the best card that you can get after bankruptcy might carry a rate of 20 percent-or you might have to rely on a card secured by a deposit that you make with the credit card issuer.

Filing for bankruptcy should always be the last resort to save your financial situation.  If you have not other option, filing for a bankruptcy is not the end of the world.  Next we take a look at how to file for bankruptcy.

When You Have To File For Bankruptcy

When bankruptcy can save your financial situation…

Filing for bankruptcy has a very negative connotation in society, but it’s a way for people who have found themselves in serious financial trouble to ease the burden of what they’ve done and allow them to start over. Businesses don’t like it, but for consumers, it can be a life saver.

We know of this young girl – just 21 years old – who was over $20,000 in debt plus she had her car repossessed for non-payment. At this young age, she was in serious financial trouble with no way out.

She was (still is) going to school trying to earn a degree so she can get a good job, but since her first credit card was issued to her at age 17, her credit woes began and they didn’t end until she was able to file for bankruptcy.

Her debts were discharged and she was able to start all over again. She purchased a (very) used vehicle for cash, got a part-time job while she went to school and worked very hard to build her credit up slowly.

Now she is 30. She has a well-paying job as a nurse at a local hospital and just celebrated buying her first home. She once told me, “I knew I was in over my head and I became very depressed because of it. The bankruptcy was the best thing I could have ever done for myself even though at the time, it was the hardest.”

Some more topics that are related to bankruptcy that you may be interested to read are:

Chapter 7 Bankruptcy

Chapter 11 Bankruptcy

Chapter 13 Bankruptcy

Repair Bankruptcy Credit

How to file for Bankruptcy

Prons and Cons of Bankruptcy

Chapter 13 Bankruptcy Information

Essential Information on Filing a Chapter 13

Another option for bankruptcy for individuals is the Chapter 13. This is more commonly known as a reorganization bankruptcy. Chapter13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years.

This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.

Who should file for a Chapter 13 Bankruptcy

There are many reasons why people choose Chapter 13 bankruptcy instead of Chapter 7 bankruptcy. Generally, you are probably a good candidate for Chapter 13 bankruptcy if you are in any of the following situations:

1.   You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so. You may think filing Chapter 13 bankruptcy is simply the “Right Thing To Do” rather than file Chapter

2.   You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.

3.   You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if for some reason you can’t stop incurring new debt.

4.   You are a family farmer who wants to pay off your debts, but you do not qualify for a Chapter 12 family farming bankruptcy because you have a large debt unrelated to farming.

5.   You have valuable nonexempt property. When you file for Chapter 7 bankruptcy, you get to keep certain property, called exempt. If you have a lot of nonexempt property (which you’d have to give up if you file a Chapter 7 bankruptcy), Chapter 13 bankruptcy may be the better option.

6.   You received a Chapter 7 discharge within the previous eight years. You cannot file for Chapter 7 again until the eight years are up.

A Chapter 13 can be filed if:

• The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago
• The debtor received a discharge under Chapter 13 more than two years ago.
• You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, your creditor will go after the co-debtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments.
• You have a tax debt. If a large part of your debt consists of federal taxes, what happens to your tax debts may determine which type of bankruptcy is best for you.

New Bankruptcy Laws on Chapter 13

As of October 17, 2005, new bankruptcy laws took effect for all three types of bankruptcy. When it comes to Chapter 13, you cannot file this way unless the following conditions are met:

1. The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago.
2. The debtor received a discharge under Chapter 13 more than two years ago.
3. When a motor vehicle was purchased within 910 days (2 1/2 years) of the filing and a secured creditor has a lien on it, the creditor retains the lien until payment of the entire debt has been made.

The following debt is NOT discharged:

• debt for trust fund taxes;
• taxes for which returns were never filed or filed late (within two years of the petition date);
• taxes for which the debtor made a fraudulent return or evaded taxes;
• domestic support payments;
• Student loans;
• Drunk driving injuries;
• Criminal restitution;
• Civil restitutions or damages awarded for willful or malicious personal actions causing personal injury or death.

All tax returns for the four years prior to filing Chapter 13 must be filed.

Debtors must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due.

Chapter 11 Bankruptcy Definition

Some Essential Information You Need To Know

A Chapter 11 bankruptcy is filed by businesses and is quite similar to a Chapter 13. A Chapter 11 is available for individuals, but it is generally used by businesses to reorganize their debts and dealings so that they can be more financially solid.

When a troubled business is unable to service its debt or pay its creditors, they can file with a federal bankruptcy court for protection under either a Chapter 7 or a Chapter 11 bankruptcy.

In a Chapter 7 bankruptcy, the business must cease operation and a trustee will sell all its assets and distribute the proceeds to the business’s creditors ratably in accordance with statutory priorities.

A Chapter 11 filing, on the other hand, is usually filed in an attempt to stay in business while a bankruptcy court supervises the reorganization of the company’s contractual and debt obligations. The court can grant complete or partial relief from most of the company’s debts along with its contracts so that the company can make a fresh start.

Often, if the company’s debts exceed its assets, then at the completion of the bankruptcy, the company’s owners or stockholders all end up with nothing. All their rights and interests are terminated and the company’s creditors end up with ownership of the newly reorganized company in the hopes that it will eventually succeed financially as compensation for their losses.

So, in general, an individual bankruptcy will be under a Chapter 7 or Chapter 11. It’s a big decision for you to make, but sometimes, it’s the only way you can “get out from under” and begin anew.

Bankruptcy Credit Repair

There is life after bankruptcy

Bankruptcy may be bad news, but it is not the end of the world. There is such a thing as bankruptcy credit repair. After which, one can qualify for loans and credit again. Bankruptcy can in fact be a blessing in disguise. It is not done overnight but through a tedious process of rebuilding credit reputation and starting over again.

Bankruptcy does appear in credit report and creditors may use this as a basis to either grant or deny loans. Bankruptcy results to a reduction of between 75 and 150 points from a person’s credit score. It does not remain on the report forever though, usually up to 10 years only. Nobody can remove the bankrupt history from the credit report. So do not believe credit repair firms who promise to do, it is simply not possible.

Credit score and credit report can improve dramatically through responsible spending and borrowing habits. Forget about the credit card for the meantime, instead use cash for purchases. When creditors or even the credit bureaus take notice of the changes in the borrowing or spending habits, they may allow the removal of the bankruptcy entry even before the required 10 years.

Bankruptcy lawyers or credit repair attorney can also help people with bankruptcy credit repair, from filing for bankruptcy and rebuilding creditworthiness of bankrupt individuals. They can explain the pros and cons of filing for bankruptcy. For instance, there are different types of bankruptcy and knowing what are these is important in putting together a bankruptcy credit repair strategy or program.