When you feel hopelessly bogged down with bills you can’t pay, a fresh start may make filing for personal bankruptcy a worthwhile pursuit. If bill collectors harass you day and night, filing for one of the two types of personal bankruptcy immediately puts a stop to the calls. Talking to an attorney or a credit counseling service to explain your exact situation should help determine if filing for bankruptcy is the best solution in your circumstances.
Filing for Chapter 7 bankruptcy may be a good choice if most of your unpaid bills come from unsecured debt. If you’re out of a job or do not make enough money to keep up with payments, you may also lose your car and house by filing Chapter 7. If your home is already in foreclosure, filing Chapter 7 may make sense if you can’t make up for the payments you’ve missed. If you do not finalize the bankruptcy process, your creditors are allowed to start calling you again in an attempt to collect what you owe. Another factor to keep in mind before filing is that once Chapter 7 bankruptcy is discharged, it takes 10 years before it disappears from your credit report.
Most people file for Chapter 13 bankruptcy because they have income but have fallen behind in their bill payments. The beauty of filing for Chapter 13 is that you get to keep your home and automobile while you file a debt management plan to repay your past-due bills over three to five years. Often, that’s enough to get you back on your feet again without having to move out of your home or watch your car be repossessed. A Chapter 13 bankruptcy stays on your credit report for seven years.
You must take credit counseling before you file for either type of bankruptcy. The counseling typically teaches you how to better handle your finances. It also helps determine if your debt is significant enough for you to file for bankruptcy. Sometimes the credit counselor recommends a private repayment plan rather than filing for personal bankruptcy. If you still decide to file for bankruptcy, a Chapter 7 filing may be thrown out of court or converted to a Chapter 13 bankruptcy instead.
Certain debts not covered in personal bankruptcy include delinquent child support, past tax bills and alimony payments. Student loans are difficult to discharge in a bankruptcy. If you buy luxury goods or take cash advances within 90 days of filing for bankruptcy, your creditors may object, and these items may not be discharged.
Nancy Wagner is a marketing strategist and speaker who started writing in 1998. She writes business plans for startups and established companies and teaches marketing and promotional tactics at local workshops. Wagner's business and marketing articles have appeared in "Home Business Journal," "Nation’s Business," "Emerging Business" and "The Mortgage Press," among others. She holds a B.S. from Eastern Illinois University.