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Bankruptcy is a Federal Court procedure that
allows those who cannot repay their debts
to have a fresh start by giving the debtor
complete or partial debt relief.
Once you file for bankruptcy, creditors cannot
sue you, harass you, or otherwise try to
continue to collect what is owed them.
Any individual or married couple. Businesses may file as well but these may become very complicated.
Chapter 7 is known as a "straight bankruptcy.
Typically most if not all debts are cancelled.
Once your "estate" is closed by
the bankruptcy court, in most cases, you
will not have to repay any of the debts you
listed.
Chapter 13 bankruptcy or a "wage earner's
plan" doesn't cancel your debts but
may allow you a longer repayment period at
a lower interest rate. This type of filing
is for the person who is having temporary
difficulty paying debts and wishes to keep
the collateral that secures the loans. Typically
this repayment period lasts 3-5 years and
the repayment schedule must be approved by
the court.
Most people who find themselves faced with
filing for bankruptcy already have very damaged
credit ratings as they are typically behind
in their payments. It is best to repay whatever
debts you owe by renegotiating with your
creditor since a bankruptcy filing may remain
on your credit report for up to 10 years.
However, if you simply cannot repay the debt,
bankruptcy might be a reasonable option.
It is unfortunate that honest, conscientious
people find themselves in financial difficulty.
What is worse is that there are predators
out there who do not hesitate to take advantage
of the good will and guilt felt by those
who are behind in their payments.
Be very wary of any "credit counseling
service" that promises to reduce your
debts. There are some legitimate debt counseling
services out there. But be sure that they
don't charge you a fee up front. Most legitimate
debt counseling agencies charge nothing up
front and will take only a small percentage
of the funds that they distribute.
And don't be fooled by the term "non
for profit agency." This is merely a
structure for incorporating a business. It
does not mean that the employees and directors
of the company do not earn very high salaries.
Be very careful of allowing anybody to automatically
draft from your checking account. Once that
money is taken out, it is very difficult
or near impossible to get back.
Never, ever, never sign a contract with anyone
if you do not fully understand what it entails.
If you are not sure what the contract means
when you read it (don't believe what someone
else tells you it says) take it home and
read it again. If you are pressured to "sign
now" or to give your credit card or
bank routing number today, run away. Most
likely these people are interested in making
money off of you than helping you pay off
your debts and maintain a decent credit rating.
There are long term consequences for filing
bankruptcy. Whether filing is the right choice
for you depends upon many different factors
that vary from person to person. Ultimately,
you should speak with an attorney to become
fully informed.