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What is Bankruptcy?

SamanthaVin | Jul 3, 2009 |

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Are you struggling with debt? If so, you are not alone. Debt is a very common occurrence that affects many Americans. It is so easy to accumulate credit cards and debt these days which puts people in a lot of problems. How do you deal with this?

You can either pay off your debts, make them easier to pay off by consolidation your loans or settling as much of it as possible, or you could declare bankruptcy. Bankruptcy is usually a last resort for most people, as it should be. It is a last resort because it will stay on your record for 10 years and can greatly inhibit the chances of you getting a loan in the near future.

What exactly is bankruptcy? Bankruptcy is made up of several chapters. As an individual, as opposed to a business or farmer, you can either file chapter 7 or 13 bankruptcy. It is not so much a matter of choice for you, but a matter of which you will be permitted to file. Chapter 7 is liquidation which means any assets that are not exempt will be liquidated to pay for your debts and the rest are discharged. Chapter 7 isn't always allowed. If you can't file 7, you are forced to file 13 instead.

Chapter 13 is the reorganization of your debt so that it is easier to manage. If you are granted chapter 13, first, the trustee will pay all the debts for you and then set up a plan to have you pay them back. This is also optimal if you don't want your assets to be taken away.

Filing bankruptcy will stay on your record for 10 years, so make sure it is really what you want to do. Try to pay off the debt on your own first because if you can, you will both eliminate your debt and improve your credit.