Bankruptcy- What You Need To Know

If you have been on the cusp of bankruptcy as of late, you must know this. You may be familiar with the definition of bankruptcy and may have coped with what you think may come next. However, you have not discovered all the ramifications of bankruptcy yet. Before you set out to declare any legal proceeding regarding your credit life, be sure to know fully what you're getting yourself into- The Mad Money Analyst is here to help you do just that. Read on to discover all you must know before making a decision that could very well impact your life for the next decade.

First off what is bankruptcy? Bankruptcy is a legal declaration that relieves an individual or business from all or most of their current debts. This enables people seek a cheaper solution to their financial issues through the federal court system. Generally there are two options for bankruptcy: chapter 7 or 13. Both of these bankruptcy proceedings will stop collection and civil lawsuit actions against you, however all have consequences.

Chapter 7. This is a liquidation which permits you to eliminate all or most of the unsecured debt that is currently held. Unsecured debt is debt not backed by a form of collateral such as a house or auto. This type of bankruptcy will include unsecured loans, medical bills, credit cards, past due utility bills, and other like credit items. In some states individuals declaring chapter 7 relief will be able to keep personal items and possibly your home; this of course depends on laws governing bankruptcy in the state you reside. Generally individuals having few assets, low income, and an abundance of debt will chose the chapter 7 declaration.

Chapter 13. This is a reorganization of the debt currently held to allow an affordable repayment plan. A case manager (or trustee) is appointed to help by collecting payments directly from you and transferring owed amounts to your creditors while also assuring that all terms and conditions of the repayment plan described in the chapter 13 declaration are followed. Generally personal property such as a home are allowed to be kept assuming current income will support payments for properties held. This action will temporarily prevent foreclosures and collections actions due to unpaid loan payments while allowing you to catch up on payments due on student loans, taxes, child support, etc.

A number of laws governing bankruptcy proceedings have been introduced since late 2005, so be sure to contact an attorney for clarification and direction. Many of these new laws prevent declaration of bankruptcy in situations that are unnecessary to do so. If you're still considering bankruptcy you, will need to know possible consequences, benefits, and alternatives to a bankruptcy proceeding.


The Consequences
Before making the bankruptcy decision, weigh the pros and cons. Declaring bankruptcy may give you a clean slate to start from, but it comes with a hefty price tag and no guarantee. First understand that bankruptcy is not a cure all to financial problems one may have. Most secured debt will still need to be repaid, however depending on the situation, you may be able to rework the payment program in which your secured debt requires.

You will most likely still be responsible for secured debt and debt acquired after bankruptcy is declared. None of this comes without a price tag- in this sense, price refers to your future credit worthiness as viewed by creditors. Declaration of bankruptcy will significantly decrease your credit worthiness and will do so for several years after your declaration- from 7 to 10 years depending on the chapter declared.

Possible Benefits of Bankruptcy
The general concept behind filing bankruptcy is to provide legal protection from creditors by clearing debt, and this may be appealing. Depending on the state laws governing bankruptcy, you may be able to keep your home and/ or auto after making a declaration. This process will generally cease collection calls, wage garnishments, and foreclosure of your home. It could also prevent or restore utilities that have been shut off due to unpaid amounts due. This action, in a sense, wipes the slate clean. But there are ramifications of such actions as described above.

Considerations Alternatives Before Bankruptcy

• Renegotiate your payments and/or interest rates on your current debts if possible
• Borrow from family
• Sell assets to cover debts
• Get a second job
• Reevaluate current expenses and cut the fat out of your expense diet
• Make a plan or a budget to get yourself out of debt

The Last Resort
If you decide that bankruptcy is the last option that you have, you will want to do everything in your power to assure the decisions you make are done knowing everything there is to know about the process. You will need to find a credit counseling agency before you file for bankruptcy, and before you do this, complete a background check on the agency using the Better Business Bureau and the Association of Independent Consumer Credit Counseling Agencies. After selecting an agency, you will need to schedule a meeting and prepare a repayment plan with the agency if the chapter you file calls for such action. This credit counseling agency must be approved by the UST in the district in which you file for bankruptcy.

Most likely you will not be able to receive a discharge from your debt until a class on debtor education has been completed. This will be discussed in the counseling session by the credit counselor you choose. If it isn't discussed, a personal financial management instruction course listing by state can be found at http://www.usdoj.gov/ust/bapcpa/ccde/cc_approved.htm.


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