The first question that needs to be addressed is what is bankruptcy? Filing bankruptcy involves a proceeding in a federal court where an insolvent debtor’s assets are liquidated and the debtor is relieved of further liability. Filing bankruptcy is treated as a judgment and it will appear in credit reports for up to 10 years. Filing bankruptcy also becomes a public record and can remain there for up to 20 years. Future employers and insurance companies will have access to your bankruptcy record and they may deny you employment, or insurance. It also could prevent you from renting a house or apartment. Filing bankruptcy in some states could mean losing your home or assets. Another common misconception about filing bankruptcy is that all the debts will be discharged leaving the person debt free. This is not true. It often will restructure existing debts, leaving you responsible for all future payments. Debts that are not discharged when filing bankruptcy are child support, alimony, education loans, tax debts, new cash advances and new purchases that are more than $1,000 for luxury products or services.
There are differences in the options for filing bankruptcy. There are Chapters 7, 11, 12 and 13.
What Each Chapter Means for Filing Bankruptcy
Chapter 7 is for individuals and business debtors. The purpose of filing bankruptcy in chapter 7 is to achieve fair distribution to creditors of the debtor's available non-exempt property. Unsecured debts not reaffirmed are discharged, providing a bright financial start.
Filing bankruptcy chapter 11 is obtainable for both business and consumer debtors. The purpose of this chapter is to regenerate a business or reorganize an individual's finances through a court-approved reorganization plan.
Chapter 12 of filing bankruptcy code is intended to give special debt relief to a family farmer with standard income from farming.
Filing bankruptcy with Chapter 13 is available for someone with regular income whose debts do not exceed specific amounts; it is typically used to budget some of the debtor's future earnings under a plan through which unsecured creditors are paid in whole or in part.
The Effects of Bankruptcy
Some of the most important effects of filing bankruptcy are the emotional consequences that are often overlooked. Many times people filing bankruptcy will feel relieved and at the same time guilty for filing. When they stop feeling guilty many times they fail to remember their past financial decisions. Then at last many will have remorse or regret for filing bankruptcy and will feel resentment towards everyone who advised filing bankruptcy. This resentment comes into the picture when they are not able to buy simple things year after year. It becomes real when they can not get into a house or buy a car. The worry often shifts from worrying about paying the bills to losing their current employment. Knowing that if prospective employees look at their credit history they will typically not employ them. Before embarking on filing bankruptcy really look at all alternatives before deciding on the course of action. Filing bankruptcy results in years of consequences.