You have thought about it a couple hundred times. You feel that it is your last resort and the only way of possibly avoiding more financial ruin. You have read and seen other people go through it and now you are soon to take that same course yourself. Before embarking in a potentially life-changing decision of filing for bankruptcy, there may be some things one needs to know about personal bankruptcy.
There is more than one type of personal bankruptcy under the law. There is the Chapter 7 or "straight" bankruptcy where part or all of the individual's debt may be discharged to repay some of the money that the person owes.
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In the process of liquidation, a person's assets are determined if they should be classified as exempt or non-exempt. The difference between the two is that non-exempt assets are usually the ones easily liquidated or convertible to cash.
These assets are then to be distributed by the court-appointed Chapter 7 trustee, who handles the financial affairs of the debtor, as payment to the creditors. Once all of the non-exempt assets are distributed, the remaining debts are now discharged, essentially making the debtor no longer liable for the discharged debts.
Chapter 7 may not be available to those who had their bankruptcy cases dismissed within the last 180 days prior to recent application and those who had been granted a discharge within the last 6 years. Remember that each state has varying laws with regards to which assets are to be exempted or not.
A person who intends to file for Chapter 7 is required to take and pass a test proving that the filer's earnings is below the state's median income for a corresponding family size. Failure to meet this requirement disqualifies the applicant for a Chapter 7 filing but instead has the option to file for Chapter 13 bankruptcy.
The second type of bankruptcy under the U.S. Bankruptcy Code is the Chapter 13. It provides the courts the supervisory powers to oversee the financial reorganization of the filer's debts.
Under Chapter 13, the court will request the applicant to submit a 3- to 5-year repayment plan in which the court will have to approve. Immediately after submission, the debtor is requested to start making payments to the court even if the proposed plan has yet to receive final approval. It is then the court who will pay the creditors.
A hearing will commence to determine the exact amount that has to be paid even as payments are continuously being made to the court. The judge will then make a ruling about the plan and then the debtor will continue paying until the repayment plan is completed. The remaining part of the loan is to be discharged and the debtor is no longer liable for it.
As bankruptcy laws are complex and changes constantly, it is a good idea to seek an advice of a bankruptcy lawyer on how to proceed in addition to checking other bankruptcy websites that offer comprehensive information that can arm you with the knowledge before taking the jump to bankruptcy filing.
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