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Bankruptcy Basics
by James H. Dimmitt
According to the American Bankruptcy Institute "household debt is at a record high
relative to disposable income." The Administrative Office of the U.S. Courts reported that
the number of bankruptcy filings for the year ended March 31, 2003 "exceeded 1.6 million
for the first time in any 12 month period," a 15.1 percent increase from the previous year.
There are two basic types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7
Bankruptcy and Chapter 13 are legal proceedings that are available to a person to cope
with a financial crisis. Personal bankruptcy must be filed in a federal bankruptcy court.
You will have to pay about $160.00 in court fees. Attorney fees are additional.
Chapter 7 bankruptcy involves the liquidation of all your assets that are not exempt
from the bankruptcy settlement. Exempt property may include automobiles, some
household furnishings, and property needed for work-related use; for example if you
were a mechanic the tools you use to perform your work would be exempt from the
bankruptcy settlement. Exemption amounts vary from state to state.
Under this plan the court appoints a trustee to handle the liquidation of your
non-exempt property. The trustee can sell or turn over your property to your creditors.
The court discharges your debts and you are now debt-free. You are allowed by law to
file a Chapter 7 bankruptcy once every six years.
A Chapter 13 bankruptcy allows you to keep property, like a mortgaged house (provided
there are no liens on it) or a car, as long as you have a steady income. A Chapter 13
bankruptcy is a court-ordered and approved repayment plan to your creditors. This
plan allows you to use your future income to pay back your debts over a 3-to-5 year
period without surrendering any property. Once you complete payments under the plan,
your debts are discharged by the court.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures,
repossessions, garnishments, utility shut-offs, and debt collection activities. Both
provide exemptions that allow people to keep certain assets, although exemption
amounts vary. A bankruptcy will not erase most child support, alimony, fines, taxes
and some types of student loans.
Most financial experts agree that a bankruptcy should always be the last resort used
for managing your debts. Bankruptcy has long lasting results. A bankruptcy remains on
your credit report for a period of 10 years, making it more difficult to obtain credit
in the future. You should also know that although your bankruptcy disappears from
your credit report after 10 years, you may still be asked by future employers or
lenders if you have "ever" filed for bankruptcy.
Disclaimer: The information contained in this article is for informational purposes
only. The author is not herein engaged in rendering legal, insolvency, tax, or other
professional advice and services.
© 2003, James H. Dimmitt. James is editor of "TO YOUR CREDIT", a weekly free newsletter.
Subscribe to the newsletter by visiting
www.yourfreecreditreportnow.com.
He is also author of "Identity Theft - How to Avoid Becoming the Next Victim!" available at
tinyurl.com/bc45
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