There are two different types of personal bankruptcy that an individual can file, Chapter 7 & Chapter 13. Chapter 7 allows you to disburse of most or all of your debts at the time of the court ruling. This method, however, has more of a negative impact on your credit rating and will stay with you longer—up to ten years.
People who file Chapter 7 personal bankruptcy are considered to be a much more credit risk then those who file Chapter 13 personal bankruptcy. In a Chapter 13 personal bankruptcy filing you pay off your debts in what is known as reorganization. Through the courts, a court-appointed trustee will determine your new standard of living and how much of your income will be given to you to live on and will divide the rest among your creditors each month.
For the next three to five years, you will have to live on a strict budget while your debts are getting paid. At the end of the reorganization your debts are considered paid in full, however, the record of your Chapter 13 personal bankruptcy will stay on your record for five to seven years.
In order to pay off your debts within the allotted time period, your debts may be reduced and your interest eliminated. You won’t be able to obtain new loans or credit without the courts permission while you are on the program, as this would defeat the purpose of the debt reorganization.
One of the main purposes of bankruptcy legislation is to afford the opportunity to a person, who is hopelessly burdened with debt, to free him or herself of the debt and start fresh - "almost like having a new lease on life." By law, all actions against a debtor must cease once you file bankruptcy. Creditors can’t initiate or continue any lawsuits, wage garnishees, or even telephone calls demanding payments. Your wife or husband will not be affected if you file bankruptcy, if they are not responsible (did not sign an agreement or contract) for any of your debt.
A number of banks now also offer "secured" credit cards where a debtor puts up a certain amount of money so you can still have a credit card. Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy.
However the fact you file bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is. The truth is, that you are probably a better credit risk after bankruptcy than before. |
