Personal Bankruptcy:
A Brief Description
Bankruptcy is a legal procedure which can give
people who cannot pay their bills a fresh start. A decision to file for
bankruptcy is a serious step. You should make it only if it is the best
way to deal with financial problems.
There are two types of bankruptcy available to most individuals.
Chapter 13 or "reorganization" allows debtors to keep property which
they might otherwise lose, such as a mortgaged house or car.
Reorganizations may allow debtors to pay off or cure a default over a
period of three to five years, rather than surrender property.
Chapter 7 or “straight bankruptcy” involves liquidation of all
assets that are not exempt in your state. The exempt property may
include items such as work-related tools and basic household
furnishings, among others. Some of your property may be sold by a
court-appointed official or turned over to your creditors. You can file
for Chapter 7 only once every six years.
Both types of bankruptcy may get rid of unsecured debts (those
where creditors have no rights to specific property), and stop
foreclosures, repossessions, garnishments, utility shutoffs, and debt
collection activities. Both types also provide exemptions that permit
most individual debtors to keep most of their assets, though these
"exemption" amounts vary greatly from state to state.
Bankruptcy cannot clean up a bad credit record and will be part of
this record for up to ten years. It can, for example, make it more
difficult to get a mortgage to buy a house. It usually does not wipe
out child support, alimony, fines, taxes, and some student loan
obligations. Also, unless under Chapter 13 you have an acceptable plan
to catch up on your debt, bankruptcy usually does not permit you to keep
property when the creditor has an unpaid mortgage or lien on it.
Bankruptcy cases must be filed in federal court. The filing fee is
$160, which sometimes may be paid in installments. This fee does not
include the fees of your bankruptcy lawyer.
Choosing a bankruptcy lawyer may be difficult. Some of the least
reputable lawyers make easy money by handling hundreds of bankruptcy
cases without adequately considering individual needs. Recommendations
from those you know and trust, and from employee assistance programs,
are most useful.
Some public-funded legal services programs handle bankruptcy cases
without charging attorney fees. Or these programs may provide referrals
to private bankruptcy lawyers. Keep in mind that the fees of these
attorneys may vary widely.
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