In the United States, more than 23,538 individuals file for bankruptcy each year. These large numbers are due, in part, to the troubling economic times and how easy it is to get in over your head with several different creditors at once. If you have found yourself unable to pay your bills and possibly even receiving calls from collection agencies each day, filing for bankruptcy may be the best solution for you. However, it should be understood that bankruptcy is never a “quick fix,” and instead of being your first choice, it should actually be a last resort. Before you even think about bankruptcy, make sure you have eliminated all unnecessary expenses and that you have researched and exhausted all other possible solutions. If this is the case, then you will need to decide which type of bankruptcy you will need to file.
Though there are several different types of bankruptcy in the United States, the two most common forms of personal bankruptcy include Chapter 7 bankruptcy, also called straight bankruptcy or liquidation, and Chapter 13 Bankruptcy, also called reorganization. More people file for Chapter 7 bankruptcy than for any other type of bankruptcy. When you file for this form of bankruptcy, your assets, excepting a few that are exempt, are seized and used to repay your creditors. For many, this provides a great deal of financial freedom and the ability to start over from scratch; it should be noted, however, that a Chapter 7 bankruptcy will stay on your credit report for ten years and may cause you some difficulty in securing jobs, housing, loans, or general credit during that time period.
A Chapter 13 bankruptcy occurs when you opt to submit to what is known as a financial reorganization in a federal bankruptcy court. During this process, you will help to put together and then agree to a plan that will enable you to pay off the debts you have accumulated within a pre-specified amount of time. This can be a great option for those who have enough disposable income to carry out the Chapter 13 plan and who wish for the process to have a less negative impact on their credit reports. In contrast to the Chapter 7 bankruptcy, a Chapter 13 bankruptcy will only appear on your credit report for seven years and will generally be looked upon more favorably by creditors.
During this important decision making process, you should be aware of the impact each type of bankruptcy will have on your credit and on your financial state. All individuals will not be eligible for all types of bankruptcy, so in some cases, choices may be limited. The best way to find out which type of bankruptcy is the best option for you is to set up a free consultation with a bankruptcy lawyer in your area or to do the research yourself. Once you have done this, all you will have left to do is begin the actual filing process. Having a knowledgeable professional to guide you through this difficult situation is key during this important time.