If your debts are controlling your life, you might be thinking about declaring bankruptcy. But before taking any action, get informed about the different types of bankruptcies and their effects on your life.
The various types of bankruptcy are: Chapter 7, 11, 12 and 13. Depending on the type of debt, quantity of debt and your status whether person or a company; will decide the appropriate category for you.
The most commonly filed bankruptcy is Chapter 7. It eliminates major portion of your unsecured debts like credit cards, or loans without security. After you file, your lenders cannot try to collect their dues from you. Your assets like homes or vehicles will be handed over to the trustee, who will then sell off these items and use the money to pay your creditors. This bankruptcy will take about 6 months to finish. You can file for bankruptcy under Chapter 7 only once in 6 months.
Businesses file under Chapter 11 bankruptcy. This allows them to retain their hold over their assets. The debts are repaid over a period of few months to few years. This type of bankruptcy is meant for restructuring debts and hence can be quite complicated. Use the services of an expert attorney while filing under this type.
Chapter 12 is the bankruptcy meant for farmers. Farmers can retain their assets and pay their debts over a period of time.
Chapter 13 bankruptcy is similar to Chapter 12. You can keep your assets that would have been normally disposed off under Chapter 7. Your debt is restructured and agreement about the payments is reached with your lenders. This allows you to clear your debt over a period of maximum of 5 years. However, there is a limit on the amount of debt that will allow you to use this type of bankruptcy. This limit varies from state to state, hence check out your state’s limits. A trustee will supervise your bankruptcy. You have to send your payments to the trustee, who will then distribute it among the various creditors. If you have problems making payments, you can switch over to Chapter 7 bankruptcy.
Before discharging your bankruptcy, you have the option of halting the bankruptcy proceedings and get your bankruptcy case dismissed.
After you file bankruptcy, your credit score will go down sharply. Your credit report will show your bankruptcy for the next 10 years after it is discharged. But if you pay your installments on time after discharge, it will start going up.
Chapter 7 is the cheapest amongst all the bankruptcies. You can file under this type by yourself. But hiring a lawyer will speed up the process and give you the right advice.