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BANKRUPTCY
There are two types of personal bankruptcy. The first is call a "Chapter 7". This is virtually a discharge of your personal debts and assets.
Things you own may be sold and the proceeds are used to pay off your creditors. Obviously, your assets are never enough to cover all of your debts, if they were, you wouldn't need to file bankruptcy. So your creditors will usually wind up losing most or all of the money you owed them. Items you may not discharge and remain obligations are federal income tax owed, alimony and child support payments.
A personal bankruptcy "Chapter 7" will be reported to the credit bureaus and can stay on your reports for up to "10 years".
The courts will have dismissed your creditors from contacting you and collecting any further money, but remember, as far as their concerned you still owe them. Meanwhile, you will be faced with the black mark of being labeled an "economic outcast" or "deadbeat". Let alone dealing with your personal "pride". With this long term effect, we highly recommend that you avoid this type of bankruptcy.
The second type of personal bankruptcy is called a "Chapter 13", known as a "Wage Earner Plan". This is where you work out a payment plan to fit your current budget to repay your
creditors, under the courts supervision. Your payment plan is set up to pay off your creditors in three years or less, though sometimes it can be extended. You do not sell off your assets and your payback may
be negotiated at a discounted rate, paying only a stipulated number of cents on each dollar owed.
Once you file under a "Chapter 13", a restraining order is sent out to all of your creditors to stop
any legal action against you and will prevent them from confiscating any of your assets.
The order will also prohibit collection agencies from contacting you further and will stop any further accumulation of interest and late-payment charges against you. You then have a court hearing to work out the actual payment plan.
A "Chapter 13" will be reported to the credit bureaus for a period of 7 years.
Though this is still considered a derogatory public record, it will not necessarily effect your ability to obtain credit after two to three years, once the bankruptcy is discharged. It will show your willingness you had in paying back your debts after having some previous difficulties.
We recommend that you avoid either of these procedures. If you have exhausted the suggestions made in this guide in working out payment of your debts, it's obvious that a "Chapter 13" is
better than that of filing for a "Chapter 7".
It is your decision whether one of these options should be used.
But again, look at the long-term implications. One last alternative to either of these bankruptcy options is "Consumer Credit Counseling Service Organizations".
"Consumer Credit
Counseling" is a service provided by non-profit organizations who have relationships with your many creditors.
They can perform many of the options provided by a "Chapter 13", and at a minimal service charge, since they are paid primarily by your creditors. Look in your local yellow pages of the telephone book under "Credit and Debt Counseling". Call some of the listings and ask if their service will fit your current situation.
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