Bankruptcy<\/strong> is the very last resort for people drowning in debt.<\/p>\n\n\n\n Bankruptcy is a court proceeding in which a person or company requests to be relieved of their debts and liabilities <\/strong>so that they are no longer legally required to pay them.<\/p>\n\n\n\n You should know what to expect before you consider filing for bankruptcy. In this guide, you\u2019ll learn about the different types of bankruptcy<\/strong> and how to apply. <\/p>\n\n\n\n The bankruptcy process begins with the debtor submitting a petition, which is most common, or on behalf of the creditors, which is less frequent. <\/p>\n\n\n\n All the debtor’s assets are measured and assessed and the assets can be used to pay off part of the outstanding debt.<\/p>\n\n\n\n The judge and court trustee will first examine the assets and liabilities of an individual to determine if he truly cannot pay his bills.<\/p>\n\n\n\n Bankruptcy laws were introduced to give a second chance to people whose finances have, for one reason or another, collapsed. Most of the time, such requests are granted.<\/p>\n\n\n\n Related:\u00a0<\/strong>5 Effective tips to get rid of debt<\/a><\/p>\n\n\n\n People who are bankrupt have far more debts than cash <\/strong>to cover them and have no hope of recovering from the situation. One would think that businesses seek help more often than individuals, but it is the opposite.<\/p>\n\n\n\n Most individuals who declare bankruptcy have one or more financial obligations, such as real estate holdings, mortgage, auto loans, and student loans<\/a> that are too much for them to cover.<\/p>\n\n\n\n If the person has no income to pay<\/a> for these obligations, he would have to apply for one of the main two types of bankruptcy.<\/p>\n\n\n\n > Read about the main types of bankruptcy<\/a><\/strong>.<\/p>\n\n\n\n According to a 2015 study, there were 844,495 bankruptcy cases filed and 97% of them were filed by individuals. The number of cases has dropped in the years since but not significantly.<\/p>\n\n\n\n While bankruptcy may seem like a relief, it\u2019s important to understand that it adversely affects one\u2019s credit score<\/a> and future ability to spend money. <\/p>\n\n\n\n It may prevent extreme legal actions by creditors such as home disclosure<\/strong> or wage garnishment<\/strong>, but there is quite a high price to pay.<\/p>\n\n\n\n Mortgage debt, credit card bills, and personal loans<\/a> might overwhelm you, prompting the need to file a bankruptcy case.<\/p>\n\n\n\n If based on your calculations, you conclude that it will take more than five years to pay off all your debts, it may be advisable to file for bankruptcy.<\/p>\n\n\n\n How will bankruptcy affect you and your credit? For starters, it can affect your credit score<\/a> more acutely than any other single financial event. <\/p>\n\n\n\n While not all bankruptcies cause your credit score to drop significantly – in fact, it’s theoretically possible that your creditworthiness could increase after bankruptcy – any negative impact makes it more difficult to obtain credit<\/em> in the future.<\/p>\n\n\n\n Filing for bankruptcy may have negative long-term effects, as it appears on your credit report for years, providing a big warning to potential lenders about your troubled payment history. <\/p>\n\n\n\n Some creditors will reject an application<\/strong> immediately when bankruptcy is mentioned on your credit report.<\/p>\n\n\n\n These are the two main types of consumer bankruptcy:<\/p>\n\n\n\n <\/p>\n\n\n\n In addition, Chapter 11 bankruptcy is mostly used by businesses and involves a process that requires court approval. <\/p>\n\n\n\n Under Chapter 7 bankruptcy<\/strong>, you can have all or part of your debts relieved<\/strong> after the sale of your liquid assets.<\/p>\n\n\n\n Liquid assets are assets that can be easily converted into cash.<\/p>\n\n\n\n Some of these liquid assets may be distributed among your creditors as repayment and any remaining debt is discharged.<\/p>\n\n\n\n How to qualify for Chapter 7 bankruptcy:<\/p>\n\n\n\n These petitions make up about 30% of non-business bankruptcy<\/strong> filings. It involves paying off some of your debts<\/strong> and being forgiven for the rest. <\/p>\n\n\n\n Chapter 13 bankruptcy mainly applies to people who have a significantly high income and do not wish to give up their property.<\/p>\n\n\n\n The total debts of people who apply for Chapter 13 bankruptcy should not exceed a certain amount. This amount varies and is reevaluated periodically. Check with a bankruptcy attorney first.<\/p>\n\n\n\n Under Chapter 13, you will be put on a three to five-year plan to repay part or all of your debt. You will submit this repayment plan to the court after which you should begin making payments to the court.<\/p>\n\n\n\n It might be confusing and overwhelming to choose between these two main types of bankruptcy. If you have secured debt, such as a car loan<\/a>, that you want to continue paying, you might want to choose to file Chapter 13. <\/p>\n\n\n\n If you prefer keeping these assets, Chapter 7 might be the best option for you.<\/p>\n\n\n\n Chapter 11<\/strong> is designed for businesses and gives them a chance to reopen as it restructures a business’s debts and assets. <\/p>\n\n\n\n The main aim of this process is to aid businesses in paying their creditors back. It has been used by large corporations like General Motors and United Airlines.<\/p>\n\n\n\n Although individuals and married couples can file for Chapter 11 bankruptcy, it isn’t normally an option for personal bankruptcy. <\/p>\n\n\n\n The court filing fee for a Chapter 11 application is already more than $1,700 and attorney fees are typically $15,000 or more. <\/p>\n\n\n\n A Chapter 11 bankruptcy will only make sense for high-income earners or business owners who can’t file for Chapter 13 due to having too much debt.<\/p>\n\n\n\n As mentioned above, the main types of bankruptcy are Chapters 7, 11, and 13. Let\u2019s tackle a few others which aren\u2019t as popular.<\/p>\n\n\n\n Chapter 9 bankruptcy applies to cities or towns where an industry closes and employees have to work elsewhere. This protects municipalities from their creditors as it rearranges their affairs to have a repayment plan.<\/p>\n\n\n\n Chapter 12 bankruptcy <\/strong>applies to \u201cfamily fishermen\u201d and \u201cfamily farmers.\u201d Debts should not exceed approximately $11 million for farmers and $2.2 million for fishermen. <\/p>\n\n\n\n You need to receive a steady annual income in these respective occupations to qualify for this type of bankruptcy.<\/p>\n\n\n\n Chapter 15 bankruptcy <\/strong>is applicable in a case where a debtor has assets and debts in the United States and other countries. The U.S court\u2019s power is only limited to the assets a person has in the United States.<\/p>\n\n\n\n The moment you are declared bankrupt, creditors may not collect their debts from you, are unable to seize assets, and may not make withdrawals from your bank. <\/p>\n\n\n \ud83d\udca1 Note<\/strong>: The filing process isn’t free. Attorney and filing fees are involved.<\/p><\/div>\n\n\n Once you file for bankruptcy, you may see a significant drop in your credit score<\/strong>. Individuals with a high credit score may even see it drop by more than 100 points. <\/p>\n\n\n\n Also keep in mind that Chapter 7 bankruptcy will stay on your credit report for 10 years and Chapter 13, for seven years.<\/p>\n\n\n\n A lot of people assume bankruptcy automatically wipes out all your debts. However, there are a few non-dischargeable debts<\/strong>:<\/p>\n\n\n\n Bankruptcy is not an option for everyone<\/strong>. Carefully weigh your situation and see if you can fix your financial woes and avoid filing for bankruptcy.<\/p>\n\n\n\nWho Declares Bankruptcy?<\/h3>\n\n\n\n
What Happens to Your Credit When You File for Bankruptcy?<\/h3>\n\n\n\n
Types of Bankruptcy<\/h2>\n\n\n\n
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Chapter 7 Bankruptcy<\/h3>\n\n\n\n
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Chapter 13 Bankruptcy<\/h3>\n\n\n\n
Chapter 11 Bankruptcy<\/h3>\n\n\n\n
Other Types of Bankruptcies<\/h3>\n\n\n\n
Chapter 9<\/h4>\n\n\n\n
Chapter 12<\/h4>\n\n\n\n
Chapter 15<\/h4>\n\n\n\n
Filing for Bankruptcy<\/h2>\n\n\n\n
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Factors to Consider When Filing for Bankruptcy<\/h3>\n\n\n\n