Why Do People File For Bankruptcy?

Over 110,000 of the population in 1960 and over 1.6 million in 2003 filed for bankruptcy according to the United States Department of Justice. The numbers are increasing with each year and with the greatest recession in seventy years taking place between 2008 and 2010, the bankruptcy statistics have soared even higher. Even right now, people are still jobless and trying to survive on unemployment benefits and government assistance. Debt can come in the form of many ways and typically does. Credit cards, utility bills, household bills, mortgage payment and car payments are natural ways that people sustain a high amount of debt, and are all reasons why people file for bankruptcy.

Types of Bankruptcy

When thinking about using bankruptcy to get out of credit card debt, it is important to understand the different types of bankruptcy:

• Chapter 7- Which was most common for a long time, requires the sale of non-exempt assets and results in forgiveness of almost all remaining debts. It is also the most severe bankruptcy. It is often referred to as “liquidation.”
• Chapter 9- Allows municipalities to organize debt
• Chapter 11- Used by larger business to organize debt
• Chapter 12-Allows farmers and fishermen to organize debt.
• Chapter 13- Which is most common after changes to bankruptcy laws helps individuals with debt organization. This is typically seen with individuals who have steady flowing income.

What to Know When Filing For Bankruptcy

When you file for bankruptcy:

• Credit counseling is a must
• Filing for bankruptcy makes the debtor no longer obligated for their debts under Chapter 7; under Chapter 13 it requires individuals to enter into a payment plan that lasts 3-5 years
• A person’s bankruptcy will stay on his credit report for 7-10 years
• Discharge of bankruptcy means that creditors are no longer legally able to hassle debtors about debt
• A bankruptcy cannot legally be avoided once the process has started

When Should You File

• Most people file when they see there is no chance at recovering from debt
• A high-paying job that ends can result in a lot of debt from unpaid bills. Even if you obtain a lower paying job, debt can still stack up. Most people decide bankruptcy is the best option when they feel they have no way to pay their debts.
• Bankruptcy helps people to pay off their mortgages so they do not lose their home by allowing you to stop foreclosure in its tracks and restructure other debts.

Contacting a Lawyer

A lawyer is optional, but can be of great assistance, so if you are considering bankruptcy, choosing a lawyer experienced in bankruptcy can be a great guide through the process bankruptcy leads a person through. Legal language is not the easiest language to understand and a lawyer can provide a huge advantage to a person in debt.