Debt Bankruptcy | Debt Reduction Group

Debt Bankruptcy

If debt is overwhelming you to the point where it is all you can think about, bankruptcy seems like the perfect way out, on the surface. In reality, bankruptcy is the worst possible thing that one could do to their credit rating. Most people think that bankruptcy is a quick and easy, painless process to eliminate all debt from their life and receive a fresh start. This could not be further from the truth. Before even considering bankruptcy, make sure you are educated to the fullest extend on the pros and cons of declaring.

Because bankruptcy is so serious, due to the new bankruptcy laws in the United States, the law requires scheduled credit and financial counseling even before the filing process can take place. Officials want to make sure you understand the full repercussions of doing so, and want to assist in finding alternatives to bankruptcy, or if they even exists at that point.

Types of Bankruptcy

There are two primary types of personal bankruptcy. Chapter 7, and Chapter 13; each must be filed legally by a federal bankruptcy court. Fees for filing with the federal court at this time is $160, but on top of that, attorney fees for preparing for the filing are additional on top of that.

If you have a regular income, and have limited debt, Chapter 13 allows you to keep property, such as a mortgaged home, cars, and other items that you might otherwise lose to bankruptcy. During Chapter 13, the courts appoint a repayment plan that allows you to pay off a debt, within a period of about three to five years, rather than surrender property to cover outstanding debt.

On the other hand Straight bankruptcy, or Chapter 7, requires the liquidation of all assets that are not exempt to bankruptcy. Exempt property could include such items as cars, business-related items, and general household furnishings. Other property will be sold by a court appointed official, also known as a trustee, or turned over to creditors directly. Keep in mind that you are only allowed a legal discharge of your debts under Chapter 7 once every six years.

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Does Debt Bankruptcy Alleviate All Debt?

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although amounts for exemptions do vary. Personal bankruptcy usually does not erase alimony or child support, taxes and fines, or federal student loan debts. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid debt upon it.

You must also keep in mind that any co-signors become liable for any debts under your umbrella. If this is not what you want, you should second guess filing, or make previous arrangements with the courts for repayment.

Finally, the courts will not accept any pre-meditated, or false debt bankruptcy claims. In fact they take it fairly seriously. Visa states that approximately 30-40 percent of its bankruptcy claims are fraudulent, and they have no problem crying to the courts about it. Paying for a trip around the world on your credit card a couple of months before filing is not that way to go about it.

Debt Bankruptcy is a serious issue, and extensive learning should be done before you even consider going this route for debt relief. You should also be aware that bankruptcy will remain on your credit report for 10 years and when seen by a potential creditor will lower your credit score thereby increasing the chance of higher interest rate. Be aware, and educate yourself, it can never hurt.