Filing for bankruptcy should always be the last report for individuals who are having financial difficulties, but sometimes it is a necessary evil that can give a person a fresh, financial start. In the United States, individuals can file for chapter 7 or chapter 13 bankruptcy protection. Before filing for either bankruptcy, it is important to know the differences between the two. Chapter 7 bankruptcy is complete bankruptcy and what most people think of when someone mentions the term. The courts will liquidate many of the person's assets and use the proceeds to pay off his creditors. The most of the remaining debts will be discharged by court order. Chapter 13 bankruptcy differs in many ways and has different implications for the filer.
Many people have a steady job, yet are still unable to pay off all of their debts. Often, unexpected medical costs and long hospital stays can lead many people to file for bankruptcy. Unlike chapter 7 bankruptcy, chapter 13 bankruptcy does not result in the court discharge of all a person's debts. In contrast, chapter 13 bankruptcy protection allows these individuals who have jobs to reorganize and consolidate their debts into a payment plan that last for between 36 and 60 months. Every month, bankruptcy filers must send a payment to a court appointed trustee who disseminates the funds to the various creditors.
At first it may seem like chapter 7 bankruptcy sounds like the better option since most debts are wiped away, but this is not the case. First of all, filing for any kind of bankruptcy will show up on a credit report for several years, which will make it difficult to obtain credit and loans. A chapter 13 bankruptcy filing will stay on a credit report for seven years, while a chapter 7 filing will remain for ten years. That is a huge difference in today's world where many things like employment, credit cards, loans, and housing applications frequently require a credit check. Another good thing about filing for chapter 13 bankruptcy is that some homeowners who are facing foreclosure may be able to stop the foreclosure proceedings if they are able to pay their debts on time after filing for bankruptcy. Finally, chapter 13 bankruptcy is seen as being slightly better than chapter 7 bankruptcy since the debts are ultimately repaid.
For individuals wishing to file for chapter 13 bankruptcy, the first step is to petition the courts for a bankruptcy filing. The court will then accept the filing and then require the filer to provide financial documentation such as a list of all debts, creditors, income, assets, and expenses. The filer must then provide the court with a plan for how they will repay their debt. Once the paperwork has been filed, the court will review it and then set a date for the individual to meet with a trustee. Trustees are agents of the court who are responsible for overseeing all aspects of a bankruptcy proceeding. At the time of the meeting, the trustee will go over the plan and ask any creditors if they have objections. Should there be any objections; the trustee will arbitrate a settlement. Once the bankruptcy has been approved, each month, the debtor will pay the trustee a fixed amount of money, which will be spread out among the creditors. Payments to the trustee must be made on time or the bankruptcy protection may be revoked.
No one plans to file for bankruptcy, but if they ever have to, it's important to know the options that are available. Bankruptcy should be the last option for people in financial trouble, but can ultimately help although the process may be painful.
