What Type of Bankruptcy Will Meet Your Needs?The type or "chapter" of bankruptcy right for you depends on the type of debt you hold, your assets, your income - as well as your short and long-term financial goals
How Long Does a Bankruptcy Take?The amount of time it takes to file for bankruptcy depends on the bankruptcy chapter that is chosen, the individual's financial situation, debt level and other factors. Most of the time required is in gathering all the documentation and information. This includes a list of all debts, income, assets, inheritances and gifts. It's best to consult with a bankruptcy lawyer to determine the length of time expected for a bankruptcy filing. The attorney will have experience with bankruptcy filings and will be able to provide a snapshot of the estimated time required.
Bankruptcy is generally considered to be the debt relief option of last resort. There are several types of bankruptcy: Chapter 7 (straight bankruptcy or liquidation), Chapter 13 (reorganization of debts), and Chapter 11 (debt reorganization normally used by a business or partnership). While a successful bankruptcy can provide a fresh financial start – individuals or businesses should carefully consider bankruptcy before proceeding because of its long-term financial implications.
Pros of Bankruptcy
- Debtors given a fresh start – a new financial lease on life
- Upon filing Chapter 7 or 13, collection efforts must stop
- Debts discharged. Creditors forgive most unsecured debts
- Your home, auto, and other essentials may be protected
- Wages you earn after bankruptcy go to you, not creditors
- From bankruptcy filing to relief takes about 3-6 months
Cons of Bankruptcy
- Bankruptcy stays on your credit report up to 10 years
- Makes it difficult to obtain credit for home, auto, and more
- Requires forfeiture of your existing credit cards
- You lose property not exempt from sale by trustee
- Doesn't discharge student loans, tax debt, alimony
- Debt option of last resort that can be embarrassing
While bankruptcy is an option that has been able to provide a fresh start for many individuals, families, and businesses – it is a serious decision that should be carefully considered with the assistance of a financial advisor or attorney who can help determine if bankruptcy is the proper course of action.
Prior to 2005, those filing bankruptcy could choose the type of bankruptcy they preferred – and most elected to file Chapter 7 straight bankruptcy (liquidation) over Chapter 13 (structured repayment). However, rules enacted in 2005 now requires those filing Chapter 7 to pass a "means test" – to qualify, they must earn equal to or less than the average monthly income for a family of their size in their state.
In addition, before you can file for Chapter 7 or Chapter 13 bankruptcy, you are now required to complete credit counseling with an agency that has been approved by the United States Trustee's office.
While bankruptcy plays a vital role to help rescue individuals and businesses, it is important to recognize that it's not the only debt relief option.