By Velida Alemic
What is bankruptcy? According to Wikipedia, bankruptcy is a legally declared inability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor ("involuntary bankruptcy") in an effort to recoup a portion of what they are owed. In the majority of cases, however, bankruptcy is initiated by the debtor ("voluntary bankruptcy"). According to Dave Ramsey, creditors have to stop their attempts to collect money and cannot call, write or sue you once bankruptcy is filed.
There are a few different types of bankruptcies. A Chapter 7 Filing which is also called a “straight bankruptcy” involves liquidating all assets that are not exempt. Exempt assets include your car, work-related tools and basic household furnishings. If you are personally filing for a bankruptcy, it does not erase such obligations as: child support, alimony, fines, taxes, and some student loan obligations. A Chapter 13 Filing is a better choice for those who are not willing to lose some of their assets but are willing to retire their debt under a less-pressured structure. Some of their debt may be discharged as well but the rest will be paid back to the creditors slowly but surely.
When you file for bankruptcy, you will have to go to a “341 meeting”, which is a meeting with your creditors and a trustee. The trustee will ask you basic questions like, “Did you list all of your assets?”, “Are the schedules accurate?”, “Have you destroyed your credit cards?”. The meeting is simple, predictable and shouldn’t cause you much stress.
Although the Chapter 7 Filing stays on your credit report for 10 years and the Chapter 10 Filing stays on your credit report for 7 years, bankruptcy is for life and should be avoided as much as possible. Loan applications and many job applications ask you if you have filed for bankruptcy before and of course you can’t lie about it. Bankruptcy is listed in the top 5 life-altering negative events that a person can go though, along with things like divorce, disability, severe illness and loss of a loved one. Bankruptcy is not the end of the world, but it should be avoided at all costs!
References:
http://en.wikipedia.org/wiki/Bankruptcy
http://www.daveramsey.com
http://www.moranlaw.net/341.htm
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