Bankruptcy Proceedings - Filing for Bankruptcy

Filing For Bankruptcy

Filing for bankruptcy gives people who are knee deep in debt an opportunity to clean the slate and legally become

debt free. This sounds like a change that anyone with debt would jump at, however filing for bankruptcy is not to

be taken lightly. There are serious repercussions involved in filing for bankruptcy.

There are two ways of filing for bankruptcy, Chapter 7 bankruptcy and Chapter 13 bankruptcy. Filing for

bankruptcy under Chapter 7 may only be done by individuals, not businesses. This is the most commonly filed

type of bankruptcy, and Chapter 7 is almost always able to completely eliminate the debts of the filer, except for

debt that is non-dischargeable, including some state and federal taxes, and student loans more recent than seven

years old.

With a Chapter 13 bankruptcy, most of the debt will have to be paid back, but you are given more time to do so.

Filing for bankruptcy under Chapter 13 is for people who have too much income to declare a Chapter 7, are

severely behind on their mortgage payments or have a lot of non-dischargeable debt.

As mentioned above, there is more to filing for bankruptcy than just getting your debt discharged, or else

everyone would do it. There are many negative consequences, and you will feel these consequences later down

the road, since a bankruptcy will stay on your credit for seven to ten years. Your credit report is the number one

factor that goes into determining whether or not you will be approved for a loan, and what your interest rate will

be.

Since most of us take out loans to purchase cars and homes, it's important to have the best credit possible. Most

of what you pay toward your mortgage goes toward paying off interest, and you will wind up paying thousands

more in interest if you have bad credit, as you certainly will if you are filing for bankruptcy.

The only time filing bankruptcy is beneficial is if you really are in such bad shape financially that you cannot afford

the necessities of life and cannot pay your bills. If you are having that much trouble financially, chances are, you

are behind on your bills so far that your credit really can't get much worse. Filing bankruptcy, especially Chapter 7,

will enable you to make a fresh start; although because bankruptcy remains on your credit report, that “fresh start”

isn't as fresh as many believe.

Filing for bankruptcy today is considered by many as an easy out. Filing bankruptcy should never be used to

evade your responsibilities. Unless there is no other way for you, it's better to simply pay your debts, and use

more financial wisdom in the future. Otherwise, filing bankruptcy will end up costing you more than it gets you out

of.

The financial damage of having high interest rates on your mortgage and car loans, which come from filing for

bankruptcy, can be enormous. You may want to talk to a non-profit organization about financial planning to get out

of debt. Many of these organizations will counsel you about better financial strategies, talk to your creditors and

work out a plan for you to get out of debt without filing bankruptcy. Filing for bankruptcy should only be used as a

last resort.

What is bankruptcy, how it all works, the different types of bankruptcy and what they mean.

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