For many people, bankruptcy is nothing more than the black wedge of the wheel on “Wheel of Fortune,” or the point at which you know that the game of “Monopoly” is over for you. Bankruptcy is something that everyone hopes they never have to know anything about, but sadly many people these days feel like they face no other choice when confronted with their massive debts. Before you read any further, it is important you understand that this is not an article advocating or trivializing bankruptcy! Bankruptcy is a very serious action that should be done only under the supervision of an attorney and qualified financial adviser. This is an article to explain what Bankruptcy is, how it works, and why it should be avoided at all costs.
Bankruptcy is a legal proceeding that will eliminate your outstanding debts and eventually let you try and rebuild your credit. There are two kinds of bankruptcy: chapter 7 bankruptcy and chapter 13 bankruptcy.
The Chapter 7 bankruptcy law is also known as liquidation, and allows a person to give up their assets in exchange for the elimination of their debts. This is a legal proceeding and has to be done with an attorney. Your assets can include anything from real estate, to cars to jewels. Certain bills will not get eliminated by the Chapter 7 bankruptcy law, including student loans, criminal fees, and child support payments. Clearly, doing this should be a last resort. It is a very complicated process and will be a part of your financial history for a long time to come. This filing will extensively damage your credit history and the bankruptcy itself will stay on your records for at least 10 years. This means that potential employers and lenders will be aware of your financial history, and might question your financial security in the future.
The Chapter 13 bankruptcy law is different in that rather than taking your assets, the collectors allow you to restructure your debts and work out new payment plans. If this seems better than the chapter 7 bankruptcy law, then you should know that the aftermath of chapter the chapter 13 bankruptcy law usually lasts longer than chapter 7. It’s tough to give an accurate figure on how long chapter 13 will affect you since it very much depends on how much time you need to pay of your debts. It usually ends within a few years of the final repayments. As with chapter 7, it will very easy for people to know that you filed for bankruptcy, and your credit rating will be mangled for a long time.
Beyond the basic definitions and proceedings, there is also the psychological side of bankruptcy. It can be a very intense period of emotional stress when you declare bankruptcy. Your credit will suffer for years, plus many people you will need to work with in the future will know that you went broke. For many people this is the most stressful part of the ordeal.
If after reading all this, you still think bankruptcy is your best available option, you need to meet with a financial adviser and learn more about the proceedings and the effects it will have on you financial and personal life. Bankruptcy is a last resort, not simply a clean slate.