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What You Need to Know About Bankruptcy
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There is a lot to know about bankruptcy and how it affects you if you choose to go down that path.
Consider these facts:
- Bankruptcy stays on your credit report for up to ten years.
- If you declare bankruptcy, you will have difficulty getting future credit such as mortgage loans.
- Any credit you get will probably cost you more in terms of interest rates and fees charged.
- Alimony, child support, and most taxes survive bankruptcy and will still be owed.
Types of Bankruptcy
The following are the two types of bankruptcy available to most people:
Chapter 7— Chapter 7 bankruptcy is referred to as "straight bankruptcy" or "liquidation," because the debtor's unprotected assets are converted to cash and disbursed to the debtor's creditors to repay part of the debt owed. Any person, partnership, and most corporations can file Chapter 7.
Chapter 13— Chapter 13 bankruptcy affords the debtor the opportunity to repay all or part of his debts over an extended time period. This plan requires that the debtor have a consistent income to make future payments for the duration of the plan. Chapter 13 is designed for consumers who need relief from their creditors and collection activity to reorganize their debts and devise a plan to repay them. The debtor is allowed to keep all of his assets, including those not exempt and not mortgaged.
Both types of bankruptcy may get rid of debts where creditors have no specific rights to property, and may stop foreclosures, repossessions, garnishments, utility shut-offs and debt collection activities.
How to Find an Attorney
If you need legal advice on filing bankruptcy, here are some basic tips in helping you find an attorney:
- Contact your local bar association for a referral.
- If you can't afford an attorney, contact legal aid services, a university law school with a legal assistance program, or the local bar association for a referral to an attorney who can help you free of charge.
- Look for an attorney who is state-certified or certified in bankruptcy practice.
Alternatives to Bankruptcy
Think about bankruptcy as a last resort. Here are a number of alternative ways to fix your finances without risking your credit rating:
- Rather than trying to avoid your creditors, talk to them.
- Let your creditors know that you would like to work out a plan to begin paying off your debt.
- Visit the National Foundation for Credit Counseling’s website or call 1-800-388-2227 for assistance.
This article was used with permission from National Foundation for Credit Counseling, a national non-profit network of 1,450 Neighborhood Financial Care CentersTM designed to provide assistance to people dealing with stressful financial situations. The National Foundation for Credit Counseling (NFCC)® is dedicated to budget and credit education and counseling.