Personal bankruptcy is a
legal procedure in which a person will receive a discharge - a court order that
says they don't have to repay certain debts. Though it may seem like an
easy way out of your debt problems, bankruptcy should always be a last resort.
Bankruptcy can lead to serious long-term problems, such as lowering
your credit score and appearing on
your credit report for up to ten
years. Bankruptcy usually does not wipe out the money owed for child
support, alimony, fines, taxes, and some student loan obligations. In
addition, bankruptcy does not usually permit you to keep property against which
a creditor has an unpaid mortgage or lien (legal claim on the property you used
to secure a loan).
There are two primary types of bankruptcies for consumers:
Chapter 7 bankruptcy removes all allowable
debts, such as certain credit card debt and unsecured loans (loans that do not
require you to give anything of value to the lender in order to borrow
money). It creates a bankruptcy estate out of the debtor's property,
which may then be sold to pay off the remaining debts.
Chapter 13 bankruptcy is a court-approved
repayment plan. Debtors repay their debts over three to five years and
must submit a plan to the court detailing how they propose to pay off the
debts.
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005, new rules are in place for people wishing to file for bankruptcy,
including requirements before and after filing for bankruptcy. Please read
the bankruptcy
guide (in PDF)
offered by the Federal Trade Commission. Consumers must get credit
counseling from a government-approved organization within 180 days before
filing for bankruptcy and must attend debtor education after filing for
bankruptcy.
Personal bankruptcy is a
legal procedure in which a person will receive a discharge - a court order that
says they don't have to repay certain debts. Though it may seem like an
easy way out of your debt problems, bankruptcy should always be a last resort.
