Filing for Bankruptcy

There are two main types of personal bankruptcies that consumers can file.  One is Chapter 7 bankruptcy and the other is Chapter 13 bankruptcy.  Chapter 7 bankruptcy, provided for under United States federal law, entitles the filer to a fresh start.  Chapter 7 bankruptcy typically eliminates most kinds of unsecured debt, which can include credit card debt, medical bills, most personal loans, judgments resulting from car accidents and deficiencies on repossessed vehicles.  Additionally, Chapter 7 bankruptcy filers usually get to keep all of their property:  home, car, and personal belongings.

 

Chapter 13 bankruptcy is basically an interest-free debt repayment plan through which the filer’s debts are consolidated and payments are made on the debt over a three to five year period.  While in a Chapter 13 debt repayment plan, creditors cannot collect from you and they are required by a Federal Court to adhere to the terms of the plan.  One key element to Chapter 13 bankruptcy is that the filer must be working or have a consistent source of income in order for the repayment plan to be approved by the court.  Chapter 13 bankruptcy filers must be able to pay for monthly living expenses in addition to being able to make a payment to the court to consolidate their debts.  Debts that can generally be consolidated under Chapter 13 bankruptcy include:  mortgage arrears, balances on vehicle loans, student loans, credit card debts and other unsecured debts.  All outstanding debts must be included in the Chapter 13 consolidation.

 

There is a new bankruptcy law going into effect on October 17, 2005.  The major intent of the bankruptcy reform is to require people, who can afford to make some payments towards their debt, to make these payments, while still affording them the right to have the rest of their debt erased. 

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