The inception of the federal bankruptcy law is intended to give relief to honest debtors so that they can avail of a fresh start after a failing financial condition. There are many contributing factors that may cause a person to file for personal bankruptcy like unemployment, unsettled credit card bills, emergency medical bills and other financial obligations which have become past due. Determining the actual timeframe that will allow honest debtors to have a fresh start can vary quite considerably depending on the actual financial condition prevailing.
Although a personal bankruptcy case begins with the filing of a petition, the process actually begins with the individual weighing all options available to him that can allow him to settle all outstanding debts. This is very important because personal bankruptcy can be quite tricky and you may find yourself unable to contend with some of the provisions.
Once you decide that personal bankruptcy is your only avenue to settling outstanding debts, then aside from filing a petition, you must also prepare all pertinent financial documents to support your claim of personal bankruptcy. It is important to consider that personal bankruptcy also offers you a number of options that you have to think about. For one, you have to decide whether you want to file for a Chapter 7 or a Chapter 13 under the Bankruptcy Code.
To help you make a more informed decision on filing for personal bankruptcy, here are concerns that you may want to think about.
- First, you should understand what Chapter 7 is all about when it comes to personal bankruptcy. Basically it is a bankruptcy statute which releases the debtor from personal liabilities based on specific types of debts that he has incurred. This means that as a debtor your obligation to pay your outstanding debts stops. This is a legal remedy for financial obligations that you cannot fulfill. This is based on a permanent order that directs all your creditors to stop any collection action on all your outstanding debts as well as the execution of legal actions and communications. This means that your creditors or their collecting agencies can no longer call, write, or visit you to force you to comply to pay the debts. However, specific properties may be used as a settlement for your financial obligations. You have the option of recovering these properties based on the provisions of the bankruptcy order.
- You can opt for a Chapter 7 personal bankruptcy if most of your financial obligations are unsecured debts like medical expenses, credit cards, and other similar debts which you no longer have the capacity to pay. Some of the common causes for the financial incapacity may be divorce, unemployment, or sudden illness. If this is the status of your financial obligations, then a Chapter 7 is the best option for you to file personal bankruptcy.
- Chapter 13 on the other hand requires you to provide a repayment plan on how you intend to settle your outstanding debts. This repayment plan normally covers a timeframe of anywhere from three to five years depending on your current financial condition. It also takes into consideration any possibilities of increasing your income that will allow you to settle financial obligations at an earlier time. Chapter 13 personal bankruptcy allows you to keep valuable property and even prevent foreclosure. This means if you have a car or a home, they remain safe despite falling behind on the equities. The monthly payments plus a little extra is used to settle the outstanding debts normally without interest charges. The actual amount of the monthly payments would be determined based on your current income and the amount of your outstanding debts.
- People normally avail of a Chapter 13 personal bankruptcy when the majority of their financial obligations have something to do with secured loans and when they have properties which are not included in the exemptions of the Bankruptcy Code. There is also intent on the part of the debtor to hold on to these properties despite falling behind on the payments. In general a Chapter 13 bankruptcy filing is intended to allow the debtor to make up for the failed payments over a reasonable time with lower or no interest charges without the creditor taking control of the properties in question.
- Another common concern when it comes to personal bankruptcy is the frequency of filing. Basically if you file for a Chapter 7 bankruptcy you have to wait for six years before you can file for another petition. For Chapter 13 bankruptcy however, you can file a petition any time that you want. A side note on this though, you must keep in mind that personal bankruptcy is intended to give you a fresh start and not an excuse to habitually fall behind on your financial obligations. Although the law allows you to repeatedly file for personal bankruptcy, filing more than once must be a sign that you would need to avail of financial consulting to straighten out your finances.
- Despite the very wide latitude accorded for people who file for personal bankruptcy, there are some types of debts that are not erased regardless if you file for a Chapter 7 or a Chapter 13. For example debts on child support, alimony, some kinds of taxes, as well as fines are not erased. In the same manner that debts not included in the list you submitted during the filing of your bankruptcy petition will not be absolved. Student loans from federal agencies and schools are also not erased by the filing of personal bankruptcy unless the court decides to do so.
Hopefully, the additional bankruptcy information that covers some of the common concerns with personal bankruptcy will help you to decide on the appropriate action to take. As earlier stated, this is your way to get a fresh start and should be taken advantage of properly. Your goal after filing for personal bankruptcy should be to establish a firm foundation for your financial future.