Things You Need to Know Before Filing Personal Bankruptcy

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Things You Need to Know Before Filing Personal Bankruptcy

If you are engulfed with monetary problems that are difficult to shake off then filing bankruptcy can be a great option for you. Personal bankruptcy filing hampers your credit report for the upcoming 10 years. But it is the best relief option to bank upon when every other option fails.

Bankruptcy filing under Chapter 7 and 13 helps you get rid of your uncountable debts. You are safeguarded under the Bankruptcy code and relieved from the various debts that you owe. But declaring bankruptcy is a serious step and you should take it only after careful consideration of the various circumstances.

Bankruptcy law changes with time. There were some recent changes made to Chapter Bankruptcy law. Congress passed a law in 2005 that made personal bankruptcy declaration difficult for some people. It was meant to restrict the filing to those who are struggling to keep up with their payments.
Chapter 7 bankruptcy allows you to wipe out your debts but does not provide any kind of repayment plan. The new bankruptcy law thus designed a means test formula that you need to qualify in order to file Chapter 7 bankruptcy.  If your income is less than the median income for your state, then this test does not apply.
Bankruptcy filing stays on your credit report for 10 years. It hampers your ability to get further credit for quite some time. But it does mean that you will never be able to get credit again. But during those times you need to pay a higher interest rate on loans that you obtain following bankruptcy. With time you can re-establish your credit and obtain better interest rates consequently.
The common notion is that you lose out on your assets when you file for bankruptcy. However this is not necessary as the protection of your assets depends on the bankruptcy rules prevalent in your state.
In order to be eligible for personal bankruptcy filing you need to submit all personal information regarding your finances, recent dealings, secured and unsecured debts, expenses, creditors, assets and tax returns.
Not all debts are erased with bankruptcy. Most of the debts can be discharged by bankruptcy. However there are some debts that cannot be wiped away like student loans. For these you need to develop a type of repayment plan that would satisfy these types of debt.
Apart from these you can also sort out your problems easily with the help of a bankruptcy attorney of your state. The attorney will examine your financial situation and help you decide on the kind of bankruptcy filing that would suit you best.

For personal bankruptcy filing cases there are two types of bankruptcy options available to you namely Chapter 7 and Chapter 13. With Chapter 7 bankruptcy you can get rid of most of your debts. But by filing Chapter 7 you lose most of your major assets with the exception of certain exempt assets. Moreover chapter 7 remains on your credit report for 10 years during which getting credit becomes difficult.

Chapter 13 bankruptcy on the other hand requires you to work out a repayment plan that needs to be approved by the court. Payments are made over a period of three to five years under the guidance of a trustee. You can keep some of your assets with Chapter 13 and the effects remain on your credit report for 7 years.

However both of the process caters to your specific needs in a systematic way and can provide solution suiting your financial condition. As such bankruptcy filing should be taken as not the end but as the beginning of a new world.

About the Author:
This article is contributed by BG, an IAPDA Certified Debt Arbitrator working with Oak View Law Group.
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