Questions You Should Ask Before Filing Bankruptcy
For some consumers, debt is an ocean in which they are barely treading water. Their income doesn't relieve enough debt, which continues to grow each month. Bankruptcy seems like a serious possibility. Before filing, however, consumers should get some basic facts.
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Types of Bankruptcy
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The bankruptcy code provides for several types of bankruptcy. Chapter 7 liquidates assets to pay back creditors. Chapter 11 and 13 adjust a consumer's debt to make repayment easier. Other forms of bankruptcy only apply to certain debtors such as cities (under Chapter 9) and farmers (under Chapter 12).
Debt Discharge
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Bankruptcy offers debt relief but it will not discharge all debts. For example, student loans, criminal fines and court-ordered payments such as alimony and child support will not be discharged in bankruptcy. Unsecured debt, credit card debt and medical bills, however, can be discharged.
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Relief from Bankruptcy
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Bankruptcy offers debt relief but it also stops credit collection efforts. During a bankruptcy, your creditors can no longer call or harass you with debt collection efforts. Bankruptcy also stops wage garnishment.
Retention of Property
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Federal bankruptcy law allows certain exemptions and also permits states to make rules as to what a debtor can protect during bankruptcy. Debtors can choose exemptions under the federal or state rules, depending on the state. Exempt property often includes your home and your car (up to a certain amount). If you take the exemptions, they do not become part of the bankruptcy estate and are not subject to liquidation.
Credit Rating
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Bankruptcy may negatively affect your credit rating and your ability to be approved for loans. Credit agencies can report your bankruptcy for up to ten years. Lenders and others that have access to your credit report will see this and it may thereby affect their decision to lend you money.
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