There are two types of bankruptcy typically filed by individuals. Chapter 7 is the most common, where most of your debts are wiped out. Chapter 13 allows you to pay back your debts on a payment plan, and may also reduce some of your debts such as medical bills.
A bankruptcy can stay on your credit file for up to ten years and should be considered only as a last resort. Credit counseling is often a first step, but once you realize you cant keep up with the payments, you should take action quickly. Ignoring the problem will only make it worse as creditors pile on late fees.
Once you file, all of your creditors will be notified and a court issue will stop wage garnishing, creditor harassment, and foreclosures. This is often the first time you can breathe a sigh of relief as the phone stops ringing and you can get back on track with your life and your credit.
A Chapter 7 filing will discharge your debts, except for alimony and child support, federally insured student loans, criminal and traffic fines, state and federal taxes due within the last three years, and debts that resulted from willful malicious acts.
A Chapter 13 bankruptcy puts you on a mandatory repayment plan where your income is taken into account. You are usually given longer to pay off your debts and may have some of the debts reduced such as medical bills and past utility bills.
It is very difficult for anyone to file bankruptcy, and is usually not
taken lightly, despite what your creditors say. Once you file for bankruptcy
you should work with your attorney and a financial advisor to learn what
happened, and how you can avoid taking on debt in the future. Bankruptcy
can be a clean start to a bright future
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