What is Bankruptcy?

Many people are embarrassed about their current financial situation and do not often ask enough questions about bankruptcy. Being in a difficult financial situation can be scary, but bankruptcy can be even scarier. It is a huge and life-altering financial decision. You must have the right information before getting started with bankruptcy proceedings.

The biggest change in the law requires individuals throughout the United States to file tax returns for the four most recent years, prior to qualifying for bankruptcy.  As well, dischargeable debts, or those debts where personal liability is taken away by the court system, is more difficult to obtain. The Act requires that debtors prove good reason for dischargeable debt. It also requires the original debtors to take personal responsibility with their non-dischargeable debt budgets.

Chapter 13 bankruptcies allow the debtor to keep some of their assets upon proving only limited amount of debt and a steady income. This type of bankruptcy is excellent for those debtors who have gotten themselves into major financial difficulty although still have means of paying for some of their assets. The court then sets up a repayment schedule and budget that allows for full repayment of mortgages, cars, student loans or unsecured debts within three to five years.

If repayment is simply not an option, the bankruptcy law requires that a debtor then file for Chapter 7 bankruptcy. This is often referred to as complete liquidation of assets, except for some exempt items. Exempt items in a bankruptcy hearing are determined by the court and are usually items that are a necessity, such as a car or work related items. Next the courts will decide how to distribute the remaining debts: as either non-dischargeable or dischargeable debt.

Another major point, a bankruptcy will stay on a credit report for approximately ten years. This will make it extremely difficult to become eligible for any type of credit, credit cards includes but especially for a car loan or a house mortgage. While some creditors will still offer limited credit to individuals with bankruptcy records, the interest rates and finance charges are usually through the roof. Often this makes it even more difficult for debtors to get back on their feet.

For specific bankruptcy law questions it is best to contact a bankruptcy attorney or legal aide in your county or state. Bankruptcy laws and proceedings may vary slightly from state to state, so be sure to make contacts in the state where you plan to file for bankruptcy. Bankruptcy should be your absolute last resort.

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Hillary D. Price is a financial counselor and coach, author, and entrepreneur in Southern California. Her innovative and in-demand “Make Dollars and Cents with Emotions” course is available at www.hdpriceinc.com. Private counseling available by appointment only. 888-769-7714, Fax 888-380-9876, info@hdpriceinc.com.