- Personal Finance
The 5 Things you Need to Know when Filing Bankruptcy
If you feel that you are drowning in debt and cannot see your way clear to paying your minimum monthly payments, you may be considering bankruptcy. If that is the case, there are several things that you should be aware of when filing bankruptcy. In many instances, bankruptcy can provide a fresh financial start to consumers who have become overburdened by debt and simply cannot pay it all. Before filing bankruptcy, make sure you are completely educated about the process.
1. Changes in Bankruptcy Laws
Bankruptcy laws did recently undergo a change. Although there have been many myths and rumors regarding the ability to file for bankruptcy, it is important to understand that bankruptcy protection is still available. Basically, the changes which occurred now mean that there are additional requirements. Furthermore, depending on your situation, you may now need to file for Chapter 13 bankruptcy rather than Chapter 7, but you can still file for bankruptcy if you need to do so.
2. What Happens to Your Assets
There often exists an idea that when you file for bankruptcy, you will lose all of your stuff. This is not necessarily true. Protection for assets depends on the rules which regulate bankruptcy in the state in which you file for bankruptcy. In some states, such as Texas, you have the ability to protect such assets as your home, vehicles, wages and clothing.
3. Impact on Your Credit
Bankruptcy will impact your credit, so it is important to completely understand this before filing bankruptcy. That said, you will not necessarily have your credit ruined if you file for bankruptcy. Nor does it mean that you will never be able to get credit again. In most instances, you will need to pay a higher interest rate on loans that you obtain in the subsequent time following your bankruptcy. As you work at re-establishing your credit, you will find that it is easier to obtain credit at better interest rates over time.
4. Not All Debts Can be Erased with Bankruptcy
It is also important to understand that while some debts can be discharged by bankruptcy, there are some debts that cannot be wiped away. You will still need to develop some type of repayment plan to satisfy these types of debt. One of the most common types of debts that cannot be erased by bankruptcy is student loans. In some cases you can postpone repayment, but you cannot erase them. In addition, you cannot erase debts that are owed as a result of alimony or child support. You will still owe those monies. Finally, in most instances back taxes cannot be dismissed through bankruptcy.
5. The 2 Types of Bankruptcy Available to Most Consumers
In most instances, you will have two types of bankruptcy options available to you when filing bankruptcy. They are Chapter 7 and Chapter 13. Under Chapter 7 bankruptcy you can write off many debts, although some cannot be written off. There is a price to pay under this type of bankruptcy and it is that you will lose most of your major assets with the exception of certain exempt assets. Chapter 7 remains on your credit record for ten yeas.
Chapter 13 bankruptcy requires you to work out a repayment plan that will then be approved by the court. Payments are made over a period of three to five years. A trustee monitors the payments. This type of bankruptcy can give you some breathing room and allow you to keep more of your assets. This form of bankruptcy remains on your credit report for seven years.