If you’re considering filing for personal bankruptcy, you are not alone. Last year, there was an average of 3,422 bankruptcies filed every single day, most of these due to unexpected and extremely high medical bills. Although beginning a bankruptcy case may result in the discharge of most of your outstanding debt, filing for bankruptcy is a decision that should not be made lightly. There are several bankruptcy issues you should be aware of before you begin the process. The main thing to know at the start is that there are two major ways to file for personal bankruptcy, each with advantages and disadvantages as follows:
Option 1: File Under Chapter 13.
By filing under Chapter 13 of the U.S. bankruptcy code, you are essentially using the courts to negotiate a reorganization of your assets and liabilities that will give partial restitution to your creditors.
Advantages: A Chapter 13 case may allow you to delay the forclosure of your property and allow for more discharge of debt.
Disadvantages: The bankruptcy remains on your credit record for up to seven years. You also need permission to obtain even limited credit post-bankruptcy from the bankruptcy courts, and most lenders will be leery to lend to you for some time.
Option 2: File Under Chapter Seven.
By filing for personal bankruptcy under chapter seven, you are consenting to a total liquidation of your assets to pay off creditors in exchange for the discharge in the difference you owe after liquidation.
Advantages: You can appeal to have certain assets exempt from the liquidation if you can make the case that you need these items for survival. Such items can include things like motor vehicles, clothes, medical and dental equipment, etc.
Disadvantages: A chapter seven filing will stay on your record from the filing date for 10 years, as opposed to seven. It also offers comparatively less control over one’s assets than the chapter 13 filing.
(Note: In some cases, such as if you are an individual at the head of a small business, filing for personal bankruptcy under chapter 11, the code usually reserved for businesses or corporations, may be appropriate. For more information on this option, it is best to speak to an expert).
The most important thing to remember when considering filing for personal bankruptcy is that every bankruptcy case is handled differently and depends on a multitude of factors, the majority of which are beyond the scope of this article. We highly recommend seeking some sort of bankruptcy mediation and/or advice before going forward. It is crucial to be organized so that you are empowered to pass any means tests and avoid the accusation of bankruptcy abuse. You should also be fully aware of the consequences for your personal bankruptcy case, and have a plan for dealing with the loss of credit as well as any debts, such as spousal support for example, that will not be discharged as the result of a successful bankruptcy application.
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