Bankruptcy


There are two types of personal bankruptcy: Chapter 7 (no repayment) and Chapter 13 (repayment). Both of them stay on your credit report for up to 10 years (Fair Credit Reporting Act).

Chapter 7

This is considered straight bankruptcy. Most of you debt is eliminated and some property can be subject to liens or mortgages. A bankruptcy trustee sells all of your non-exempt assets and distributes the proceeds to your creditors.

Chapter 13

Chapter 13 bankruptcy is known as a reorganization bankruptcy. This means that, instead of selling off all relevant assets to pay creditors, a person who files for Chapter 13 bankruptcy will set up a repayment plan that uses their income to gradually eliminate their debt. The repayment plan is normally five years long.

However, it’s important to realize that not all debts can be discharged, such as alimony, child support, student loans, and most tax claims.

Costs:

Filing: $300

Attorney Fees: Up to thousands

Process: time consuming and complicated.

Before filing you need:

  1. A list of all creditors and the amount and nature of their claims
  2. The source, amount, and frequency of the your income
  3. A list of all of the your property
  4. A detailed list of your monthly living expenses (food, clothing, shelter, utilities, taxes, transportation, medicine, etc.)
  5. Certificate of credit counseling completion

After effects you might not have considered:

  • More difficult to qualify for a mortgage or rent a home
  • More difficult to qualify for an auto loan or other loans
  • Higher interest rates
  • Be subject to property repossession
  • Harder to get a job

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