Declaring Personal Bankruptcy

When you are overwhelmed by debts and are unable to repay them, you should explore the option of declaring personal bankruptcy. By declaring bankruptcy, you will be able to get a fresh start and stabilize your finances within a few years. Many people who are unable to pay their creditors choose this option.

Negative Impact on Credit Rating

The first aspect you need to be aware of bankruptcy is that it will negatively affect your credit rating. This is true even if you do not succeed in your application. The mere fact that you filed for bankruptcy will hurt your credit rating and decrease your credit scores for the next 10 years.

Chapter 7

There are two types of personal bankruptcy – Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, most of your debts are forgiven. Moreover, the process takes only 6 months to complete. Once your application has been accepted, you are free of most of your debts and can begin afresh. You will also be allowed to keep some of your property.

However, not everyone is eligible to file for a Chapter 7 bankruptcy. If your income is greater than your expenses, then you need to file for Chapter 13 bankruptcy,

Chapter 13

Chapter 13 bankruptcy is often called the repayment bankruptcy as you need to repay most of your debts over a 5-year period. However, one major advantage of this plan is that you get to keep most of your property. You need to submit a proposal to the court about your repayment plan. You will be repaying your debts from your income. The court will allow you to retain some of your income for your living expenses; the rest will have to go toward repayment.

To file for Chapter 13 bankruptcy, you need to pay a fee as well. This is an additional expense that will have to be accounted for when you make your plans.

In the event that you lose your job midway through the repayment plan, the court can forgive your debts citing your hardship.

You also have the option of pre-paying your loans and getting out of debt sooner.

Retain a Lawyer

Before you decide between a Chapter 7 and Chapter 13 bankruptcy, you need to go through your options carefully with the help of a lawyer. A lawyer will be able to point out any loopholes pertaining to your particular situation. Moreover, a lawyer can help you file for the bankruptcy of your choice if you decide to go ahead with the procedure.