A Guide to Personal Bankruptcy

It's a last resort if you find you can't pay off your debts. Although this kind of situation is a very stressful one, and it will mostly put an end to your credit rating for a long time to come, the federal bankruptcy law was designed to provide a person in this situation with a fresh start.

The first thing you need to know is that there are two types of bankruptcy available to an individual. Chapter 7 bankruptcy means the liquidating of your assets and turning them over to the courts. An appointed trustee of the courts follows the court-supervised procedure, and he will reduce the debtor's assets into cash. After this, the trustee then pays the creditors. With Chapter 7 bankruptcy, most of the filer's unsecured debts are written off by the courts.

Chapter 13 bankruptcy is the kind filed by a debtor who has some kind of valuable asset, like a house, which he wishes to keep, but that is not covered by any federal or state exemptions. With this variety of bankruptcy, the debtor, with the direction of the courts, has to set up a repayment plan with the creditors to repay all or a part of their debts, most often over a period of within three to five years. In the hope of getting something sooner rather than later, the creditors will often settle for less than the full amount that is owed. This usually works for someone who has a steady source of income.

The rules and regulations governing the bankruptcy are spelled out by the court, and must be followed to the letter by both the debtor and creditors. After a person has filed for a bankruptcy and the court has granted approval for the petition, all transactions like withdrawing money from a bank account are frozen. There are notices sent to creditors that they must stop all actions to try and recover or collect monies owed from the debtor.

After the debt has been resolved in a satisfactory fashion as set forth under the agreement of the bankruptcy proceedings, the court issues a discharge this releases the debt. All of the creditors involved are given a permanent order to stop any and all forms of collection action taken on discharged debts. This includes legal action and any type of communications with the debtor.

For a personal bankruptcy to be beneficial for a person who can't repay their debts, you must provide a full disclosure of everything you have. Trying to hide assets or fooling the courts can result in serious penalties for fraud.

Finally, you should be aware that personal bankruptcy and federal bankruptcy laws have changed recently. The main result has been that the new rules make it much harder to declare Chapter 7 bankruptcy. With the new law, experts feel it might be harder to make payments, since the amount to be repaid to creditors is based on the basic cost of living in your state or county. This figure is determined by the IRS and the Bureau of Labor Statistics. The difficulty here is that your actual expenses for living are usually significantly higher than what the IRS has determined are the standards.

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