- There are six types of bankruptcy filings in the U.S. The most common are Chapter 7 and Chapter 13. Chapter 7 eliminates most unsecured personal and business debts through liquidation in addition to assets that aren't exempt under state law. Chapter 13 allows individuals and businesses to retain certain assets they might otherwise forfeit and to enter into a repayment schedule supervised by a court trustee. Chapter 11 is a filing primarily targeted to business entities that are planning to reorganize. Chapter 12 is only for family-run farms and allows repayment of accrued debts much like Chapter 13. Chapter 9 and Chapter 15 deal with bankruptcy proceedings involving municipalities and foreign countries, respectively.
- While it is not impossible to do all of your own paperwork and file for individual bankruptcy, it is always advisable to consult with an attorney and determine which type of filing is appropriate for you. It is critical in that meeting to provide all pertinent financial records and tax returns and to identify which debts are unsecured and secured. Unsecured debts are typically credit-card obligations; secured debts are tied to tangible property such as a home or a car. These sums are entered into a formal petition that is filed with the bankruptcy court. Upon notification by the court that you have filed for bankruptcy, your creditors must stop their collection efforts. A trustee is appointed to your case and, depending on the type of filing, your debts will be discharged or a repayment schedule established for you to make good on your outstanding debts.
- By filing for bankruptcy, you are demonstrating that you are trying to do the right thing rather than ignoring your obligations. While there is no denying that a bankruptcy is a black mark on your credit rating, it is likely that you are already generating negative reports by falling behind in your payments. When you file for bankruptcy, it will be more challenging and expensive for you to acquire credit or take out a loan or a mortgage because of the higher interest rates a lender will charge you. A Chapter 7 or Chapter 13 bankruptcy remains on your record for 10 years, but Chapter 13 may be removed after seven years.
- You can face some jail time if you deliberately falsify information on your bankruptcy petition regarding your assets and income. Bankruptcy does not force you to give up everything you have, nor does it preclude you from owning property again. Although it is a public record, your family, friends and coworkers will not know about it unless you tell them. If you change employers, however, your new employer may run a credit check. You cannot be fired from your current job solely because of a bankruptcy filing, nor do you have to be completely broke to file a Chapter 7 or Chapter 13 petition. Certain debts cannot be discharged in a bankruptcy proceeding. These include alimony, child support, student loans, taxes and debts created through acts of fraud or as the result of lawsuit judgments.
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