Bankruptcy is a process in which consumers and businesses can eliminate or repay some or all of their debts under the protection of the federal bankruptcy court. For the most part, bankruptcies can be divided into two types – liquidation and reorganization. According to Brian Linnekens there are several types of reorganization and liquidation bankruptcies but Chapter 7 bankruptcy comes under the liquidation and 13 is most commonly used by reorganization.
Figure out what bankruptcy options you have
These are types of bankruptcy most commonly used by individual filers in the United States:
Chapter 7 bankruptcy: According to chapter seven (7) Bankruptcies preceding that can wipe out many of your debts in a three to six month period. However, you may lose some of your personal property.
Chapter 13 bankruptcies: According to chapter thirteen (13) Bankruptcies preceding you will be required to make a repayment plan based on your income, showing how you will pay off your debts in the next three to five years.
Consider your alternatives
Bankruptcy is not for everyone. Indeed, many unnecessary bankruptcies are filed each year. You should sit down with your financial documents and consider your situation carefully before making a decision. You may find that you do not need to file bankruptcy because you can fix your financial woes with a few simple changes.
Ensure that you are eligible to file for the type of bankruptcy you want to file
There are certain requirements that you must meet in order to file for certain types of bankruptcies. For example, you may not be able to file for Chapter 7 bankruptcy if your income is high enough to pay off your debts through Chapter 13. Also, if your income is too low, or your debts too high, you may not be able to file for Chapter 13 bankruptcy because you cannot show that you are able to meet your repayment plan.
Find out what debts will and won’t be forgiven There are certain types of debts, such as child support, money and tax debts, that cannot be wiped out through a bankruptcy proceeding, no matter whether you file Chapter 7 or Chapter 13. Be sure that the debts that you have are types that can be addressed in bankruptcy before you file. It won’t do you any good to file only to find out that bankruptcy will afford you no protection.
Find out if your credit card debts will be wiped out
Bankruptcy has become an effective tool for wiping out credit card debt. You should figure out if your credit card debt will be wiped out by a bankruptcy proceeding before you file. If you lied on a credit card application or spent well beyond your means, bankruptcy may not be able to forgive your credit card debt.
Ensure that your pension plans are safe
Most pension plans and life insurance policies are protected by state laws in a bankruptcy scheduled. Before filing for bankruptcy, it would still be a good idea to find out whether your pension plan (401(k), IRA) and/or life insurance policies will continue to be protected.