Filing for bankruptcy can be an emotionally trying experience, but once it’s finished people who have fallen on hard times can breathe easier thanks to the fresh start it provides them to get their finances in order. Understanding as much as possible about the bankruptcy process can help make it less stressful and help you make better choices.
The Great Recession resulted in a sharp rise in the number of bankruptcy filings in the U.S., but that number is beginning to decline as the economy recovers. Bankruptcies hit a high of 1.5 million filings in 2010, but have now declined to 1.2 million in 2012. This is still well above the pre-recession number of about 1 million in 2008.
In terms of personal bankruptcies, most consumers file either a chapter 7 or chapter 13 bankruptcy, although some fishermen and family farmers may be able to file chapter 12 bankruptcy. Your individual financial circumstances will determine which type of bankruptcy is best for you.
A Chapter 7 bankruptcy will completely discharge your debts, leaving you unencumbered by past obligations to rebuild your finances. Chapter 7 bankruptcies remain the most common form of bankruptcy filed in the U.S., although changes to bankruptcy law made in 2005 have made a Chapter 7 bankruptcy more difficult to obtain.
In a Chapter 7 bankruptcy, you’ll get to keep most of your property and you’ll have the vast majority of your consumer debt wiped clean. Under the 2005 bankruptcy reform law, a means test will be applied to your income and expenses to determine whether you’re eligible for this form of bankruptcy. Also, once you’ve filed a Chapter 7 bankruptcy, you won’t be able to file again for eight years.
Chapter 13 bankruptcies are essentially debt reorganizations. In a chapter 13 bankruptcy, the court will prioritize your debts and establish a payment plan. You’ll get to keep your property, and you’ll have to make payments on your debts over the next three to five years. After that time period is over, your debts will be considered discharged. Under this form of bankruptcy, your creditors will get some, but not all, of what they are owed.
One benefit of Chapter 13 bankruptcy is that it applies to some types of debts not covered by Chapter 7 bankruptcy, such as law suit awards, tax debt and marital settlement debts.
Chapter 7 bankruptcies stay on credit reports for 10 years, while Chapter 13 bankruptcies remain for just seven.
If you’re considering filing for bankruptcy, visit a bankruptcy law office in your area today to talk to attorneys experienced in handling these cases. They’ll be able to answer your questions and determine whether bankruptcy – and what variety of bankruptcy – is right for you.