In the last post, we talked about how bankruptcy works, in general terms. In this post, we’re going to talk about who can file, why you would want to file, and what types of bankruptcy (chapters) are available.

Technically, anyone can file for bankruptcy, but most people who file have far more debt than they can possibly pay. Filing for bankruptcy is not free, and if bankruptcy is not granted by the court, those fees essentially become wasted money. You may be able to find free consultations with bankruptcy lawyers in your area—make use of this service to see if a lawyer thinks you actually have a chance of success in bankruptcy court.

You only want to file for bankruptcy if you truly cannot pay your debts. Having debts that are a burden on your lifestyle, are unpleasant, or that require long hours of work to repay is simply not enough of a hardship to make it worth the trouble of bankruptcy.

If you have decided to file for bankruptcy, here are the most common “chapters” and what they mean:

Chapter 7 is the chapter you file if you believe that there is no hope that you will ever pay your debts. In Chapter 7, you (or your business or organization) have all of your assets (except those deemed “exempt” by the court) seized and liquidated to pay back as much of your debt as possible. This is the most painful type of bankruptcy.

Chapter 11 is perhaps the most famous type of bankruptcy, and has become something of a shorthand for bankruptcy in general. This type of bankruptcy allows for you to reorganize your debt without having to have all of your belongings seized by the court, but requires that you submit a plan to your creditors to repay them, which may involve moving the due dates and liquidating some assets.

Chapter 12 and Chapter 13 are for people who make a regular income, but it’s simply not enough to pay debts off before their due dates. Under Chapter 13 (Chapter 12 is for farmers and fishermen), you would have a certain percentage of your salary or wage deducted and given to your creditors, if approved. Under Chapter 13, none of your property is seized.

To reiterate, bankruptcy has serious effects on credit and is not free. Also, bankruptcy fraud is a serious crime, and can have long-lasting effects. But for those who are really in a bind, it offers a chance to start over again. So-called “strategic bankruptcy” is not usually a wise course of action for an individual, as bankruptcy is strictly controlled and has wide-reaching effects.

In the next post, we’ll talk about the effects of bankruptcy and how to proceed with credit repair after a bankruptcy.

Proceed to your review.

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