Is Bankruptcy Right for You?

by Matthew Perry
(last updated February 21, 2009)

Applying for bankruptcy will cost you lots of money, both in application fees and lawyer fees; it will take a decade to recreate a good credit score, and you may lose property or belongings to satisfy part of your debt. Generally, you don't want to declare bankruptcy unless you have no hope of paying off your debts in the next five years or so, but if your particular situation is complicated, you may want to consult a professional to find if bankruptcy is the best option for you. In the meantime, here's an overview of the two main types of bankruptcy, chapter seven (VII) and chapter thirteen (XIII).

Chapter VII: Title seven bankruptcy is sometimes known as liquidation bankruptcy because if you file for it, all of your non-exempt possessions will be sold (liquidated) to pay as much of your debt as possible. Exempt items can include cars, houses, clothing, and jewelry that are below certain value levels (exact numbers vary from state to state), with everything else, including secondary properties and anything exempted item worth more than the limit, up for grabs.

If you're in circumstances which make bankruptcy an appealing option, the chances are that you won't have much that isn't exempt. However, if you have significant non-exempted items, you may be better off with other options, such as debt renegotiation.

Title XIII: Title thirteen applicants have to have a regular income, whether from a job, social security, or other sources. This type of bankruptcy is aimed at people with both extreme debt and unexempt properties they don't want to lose. Some people find it particularly useful because filing for title XIII bankruptcy will stop a mortgage foreclosure in its tracks. The debt to be discharged cannot be over a set limit which changes periodically. The debt limit for fixed items, such as cars and homes, is different from the limit for unfixed debt from credit cards and other sources. The flexible debt limit is considerably lower than the fixed debt limit.

Bankruptcy can work wonders with some kinds of debt—especially credit card debt—other debts don't get touched by it. Student loans, alimony, child support, and most kinds of tax debt will hang after other debts get discharged, as will debt from any loans obtained fraudulently. If you don't have any of the exempted debts, bankruptcy will leave you completely free, unless you come in to money through inheritance, divorce settlement, or other unforeseen means. One of the best features of bankruptcy is the automatic stay—from the moment you file for bankruptcy until the moment the process is concluded, creditors are no longer allowed to harass you.

All in all, declaring bankruptcy is a drastic step and should be done with care and thought. Alternatives such as credit negotiation may be better ways to get out of debt, although

Author Bio

Matthew Perry

MORE FROM MATTHEW

Realistic Budget Categories

Let's see, I think I'll put a little money in the Ferrari fund . . . some for a trip to Maui . . . what am I forgetting? Oh ...

Discover More

Safe Deposit Boxes

These classy devices aren't a new invention; in fact, they've been around so long that a lot of people don't know exactly ...

Discover More

Compound Interest Working for You

When you understand what compound interest is and how you can put it to work for you, you'll be in a better position to earn ...

Discover More
More Money Tips

Life After Bankruptcy

Bankruptcy is a life changing event. Life after bankruptcy requires a paradigm shift on saving and debt.

Discover More

Which Bankruptcy is Right for Me?

When contemplating bankruptcy, deciding on the type of bankruptcy to file can often be as difficult of a decision as whether ...

Discover More

What Types of Bankruptcy Are There?

Bankruptcy is a more complicated issue than many may think and one that should be researched before you dive in. If you know ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 8Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is 0 + 7?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)