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Sunday, February 22, 2009

How Bad is Bankruptcy?

By Paul J. Easton

Personal bankruptcy can be your worst nightmare. As far as debt management options are concerned, filing a bankruptcy is the last resort you have to undertake. Unless there is no more option left, filing a bankruptcy must be thoughtfully considered as it has long-lasting effects all throughout your lifetime.

Bankruptcy is a declaration of the inability of an individual to pay its creditors. Creditors may likewise file a bankruptcy petition against you in their effort to recover a percentage of what they are owed to. A restructuring plan can also be initiated. This is because, in most cases, voluntary bankruptcy is initiated by the debtor.

People in bankruptcy status follow rules where they don't have to repay certain debts. This situation is where a court order called a discharge will be released to you.

Bankruptcy makes a mark in your credit report for 10 years. Information like the date of your filing and the later date of discharge will likely stay on your credit report and this can make your application for credit later difficult. Buying a home, getting a life insurance and even getting a job in the future can be a little tougher because of this information on your credit report.

There are two types of personal bankruptcy. The first type is the Chapter 13 Bankruptcy and the other is Chapter 7 Bankruptcy. A bankruptcy case must be filed in the federal bankruptcy court. With both types of bankruptcy, one may get rid of unsecured debts. In addition, the discharge will stop foreclosures, garnishments, repossessions, and utility shut-offs. It will likewise put off debt collection activities.

With bankruptcy, one can be allowed to keep certain assets, although the exemption amounts vary by state. Personal bankruptcy, on the other hand, does not eliminate child support, alimony, and fines. It also does not exempt one from taxes and student loan obligations.

Bankruptcy can be very traumatic as it brings along a stigma in the society. For the few, however, it remains as a way to have a fresh start for people who went through financial difficulty and thus were not able to satisfy their debts.

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