Bankruptcy is a procedure that is designed to relieve debt to consumers who have fallen on hard financial times and cannot afford to pay their existing debts.
While there are many types of bankruptcy out there, the most commonplace are chapter 7 bankruptcies and chapter 13 bankruptcies of the bankruptcy code.
Chapter 7 is the most common for the individual. It is the complete erasing of qualifying debt. The debtor is then released from all repayment obligations. But chapter 7 bankruptcies are not to be taken lightly.
While giving you an immediate fresh start in repairing your finances, it remains on your credit report for 10 years. You will be looked at as a high credit risk and financially irresponsible.
Chapter 13 is less harmful to your credit. Though there are still marks against you, since you will be working to repay your debts on a payment plan, you do not look like you are financially irresponsible, though you are still considered a slight credit risk. Also, your qualifying assets will not be sold with the chapter 13 bankruptcy like they would in the chapter 7.
In 2005 an act passed legislation that now makes it more difficult for individuals to receive a chapter 7 bankruptcies. There are now terms to be followed such as pre-filing credit counseling and post-filing financial education.
So when considering your file for bankruptcy, it is important to weigh the sides between chapter 7 and chapter 13. Which one will do you more harm than good when it comes to solving your financial problems?
May 10th, 2008 at 1:27 am
Personally I would have to say go for the Chapter 13. If you go the Chapter 7 route you are basically screwed for the next 10 years. If you go with the Chapter 13 like he said, at least it looks like you are trying to make up for the mess you got into.
May 28th, 2008 at 12:55 am
This article has very useful information! Actually one of my friends first read this article and asked me to visit this page.
May 29th, 2008 at 2:58 am
Bankruptcy (along with taxes) still needs to be reformed. I think with the current housing mess, there are going to be a lot more filings in the coming years and not just for individuals.
May 30th, 2008 at 2:06 pm
Chapter 13 is really the best way to go about it. I am not really sure that I agree with your interpretation on Chapter 7. It need not necessarily be akin to being ‘screwed for 10 years’! Here are some articles explaining various aspects of finance. Check in the ‘Debt’ category.
Should I say CHEERS!!
June 10th, 2008 at 11:34 am
The stigma attached to bankruptcy must make someone think twice before seriously considering this option, though it is encouraging to note that many presently wealthy people did at one stage file for bankruptcy.
Live and learn your lessons, then bounce back even stronger, I guess.
June 13th, 2008 at 5:27 am
I hate how they made it more difficult for individuals, but not for corporations. Figures…
June 20th, 2008 at 9:02 am
I have to agree with Jesse up there. Chapter 13 would be the best choice.
June 21st, 2008 at 6:30 pm
I don’t think which type of bankruptcy is the issue at hand for most people in that situation, your lawyer and the law will decide which id best
July 9th, 2008 at 12:31 am
Yeh 100% agree with Jesse. I myself am from the UK, and things are pretty similar over here.
Mike
July 9th, 2008 at 11:27 am
It seems that there are a lot of chapter 7 stuff going around. People are defaulting on loans left right and center. It seems incredible to see massive default on loans by people where they continue to live a very lavish lifestyle nonetheless. Look at O.j. Simpson who is constantly seen in very expensive restaurants seemingly spending a lot of money. He is not the one in this regard. There should be a permanent lien on all future earning to bring some kind of responsibility to the table.
July 10th, 2008 at 9:14 pm
It is a good idea to talk to a local real estate professional before claiming bankruptcy. You may have more equity in your home than you think. After the sale of the property,you can use that equity to pay off debts.
July 17th, 2008 at 10:48 am
This is very different to how it is the UK. I believe the salte is wiped clean and only stays on file for 5 years.
July 21st, 2008 at 10:32 am
in biblical times a person was sold into slavery for accruing debt he could not pay.
That may be a bit extreme but there needs to be some kind of responsibility whereas those who owe money feel a great need to pay up.
Its just not fair any other way.
July 25th, 2008 at 10:13 pm
Thanks for the article, it was very informative and helped me very much.
–
Sorry for my English, I’m French
August 29th, 2008 at 12:06 am
I went through Chapter 7 recently and found it to be a much more consistant option than Chapter 10, so the guy above, it depends on a case by case basis more than anything. And remember there’s no such thing as a credit blacklist, even with Chapter 10 on your record! Good luck.
August 29th, 2008 at 12:07 am
Sorry my bad, Chapter 13 not 10.
September 9th, 2008 at 10:35 am
It seems lots of people are looking at different bankruptcy options as businesses seem to be faltering at a record pace.
Some falsely file chapter 7 and hide their real assets in other places. That seems to be the norm in many places
October 5th, 2008 at 4:33 am
I agree with Jesse…chapter 13 is definitely a better way to go. While you will have to adhere to a repayment plan, you have a much better chance at getting out of debt while retaining some of your assets.
October 9th, 2008 at 7:22 am
Great article about bankcruptcy. I definitely agree with your overview, Claire. Thanks for sharing it.
October 10th, 2008 at 6:20 pm
If you have a lot of equity in your home or have other properties take the Chapter 13.
October 23rd, 2008 at 7:18 pm
Thanks for the helpful article. I like your “avoiding bankruptcy” articles even more. This blog surely helps some people in need.
November 12th, 2008 at 1:55 am
I have to disagree with Jesse. We are assuming there is an actual human being sitting around looking at your application or credit request. Once you file Chapter 13 it’s…Bankruptcy.. and that’s it. You will get denied for bankruptcy.. Once you start getting denials that compounds..So, if your going to do it and you qualify you should just file Chapter 7 and wipe out all of your debt.
November 12th, 2008 at 4:59 pm
I agree Jesse, it makes you look like you are trying to rectify the situation at least!
November 27th, 2008 at 10:17 am
Good article and very relevant in todays financial climate
December 9th, 2008 at 6:40 pm
I have friends that have filed Chapter 13. It is the way to go….almost like you will be given a second chance – but it will take awhile to get things back on track.
December 15th, 2008 at 6:15 pm
I totally agree with Jesse. Other than the fact that you are screwed for the next 10 years with Chapter 7, it actually takes you nowhere. It is the last resort for someone filing a bankruptcy, whereas Chapter 13 is more like a recovery plan on financial losses. So guys who has hopes remaining, go for Chapter 13!
January 6th, 2009 at 3:18 am
I’d like to avoid bankruptcy altogether. Right now we’re keeping our heads above water. I’ll have some extra cash coming in at the end of the month which I’m hoping to use to pay off our escrow shortage — that way we’ll be doing way better… we’ll see how things are going by then.
January 9th, 2009 at 12:07 am
Totally agree. From what i can see Chapter 13 makes more sense.
January 21st, 2009 at 2:54 pm
Chapter 7 sounds like jail, but maybe if your a young person it wouldnt be as bad, maybe around age 20..after the 10 years you will have a clean bill of debt..
but what about after the 10 years, are you still considered high risk?
February 3rd, 2009 at 3:36 am
I’ve always been told that chapter ten is the thing to go for, as it “purges” from your records after time more than the other types of bankruptcy, which can leave you with bad credit for years. Although, this was before a lot of the new legislation was implemented.
Jeff
February 10th, 2009 at 6:57 am
i think i agree with jesse, 10 years is a really long time to constantly have problems financing cars, houses etc
March 11th, 2009 at 8:55 am
In the UK there is only one type of personal bankruptcy, which is most like Chapter 7. You basically have to hand over all your main assets to be sold, which can include your home. In the US Chapter 13 will seem preferable in most cases, but any form of bankruptcy should not be considered unless there really is no alternative.
March 16th, 2009 at 8:36 pm
In the U.K. if you are a personal bankrupt your record is “cleaned” after two years.
We have an epidemic of dodgy tradesmen and companies that do this on a merry-go-round.
My friends nephew owes him money, a personal loan, but has declared bankrupt after wasting thousands on rubbish and fancy cars he couldn’t afford.
What ticks me off is that for every 1 or 2 genuinely honest cases of things just turning to dust, there seems to be 5 or 6 dodgy bankruptcies where the individual is merely passing the buck.
Just who does the buck get passed to? Joe Public I excpect.
April 23rd, 2009 at 12:48 am
I believe that Bankruptcy is they worst thing you can do, I would get 3 jobs before I had to file for Bankruptcy, but thats just me.
April 30th, 2009 at 3:05 am
From what I understand, the law has made it very very difficult for people to file for Chapter 7 now. But, with Chapter 13 and still having to pay back some of the debt, it may not help you as much if you are really struggling. If it takes 10 years to complete the repayment plan, aren’t you perhaps better off with 10 years of bad credit but the ability to not send any money towards debt (unless of course you feel some moral obligation to repay your debts, which is another issue entirely).
May 7th, 2009 at 6:24 pm
Great advice. I wonder though, will bankruptcies increase during these harsh economical times?
May 12th, 2009 at 3:49 am
Avoid bankruptcy at all costs. You’ll be scarred for life. Many lenders won’t ever give a loan to someone that has declared bankruptcy. It falls off your record after 7 – 10 years, but if they find out, your app will hit the bin.
May 16th, 2009 at 9:37 am
And now is bankruptcy everywhere
May 28th, 2009 at 1:13 pm
I agree with Jesse, I think going into chapter 13 is much more beneficial. Not just for your own credit report, but you do owe people money and you should try to get into a program to pay it back. Just filing chapter seven and not paying is, well, its mean.
June 2nd, 2009 at 9:30 am
I have to agree with Jesse on this one. Chapter 7 will give you a gnarly ruined credit score for such a long time.
June 4th, 2009 at 1:58 am
I agree with Jesse, my friend did Chapter 7 and he can’t get any loans or financing even though he has a stable job now.
June 22nd, 2009 at 5:44 pm
Chapter 7s are very difficult to go through, and they really aren’t worth the hassle. If you have any chance at all of being able to pay off your debts you need to go with Chapter 13, it shows accountability, and when you clear your debts you won’t be haunted by a mistake for 10 long years.
July 16th, 2009 at 2:58 pm
What about the bankruptcy of Lehman Brothers and General Motors? What chapter of bankruptcy did they file?
August 4th, 2009 at 10:28 am
What about chapter11?
August 11th, 2009 at 1:47 am
Go Chapter 13 all the way. Be responsible and clean up your mess if you possibly can. You can do it!
August 14th, 2009 at 3:06 am
Credit is for suckers…..at an early age learn what the word NO means…you’ll sleep better at night…in a bed that you actually OWN!
September 5th, 2009 at 2:24 pm
Chapter 7 is sometimes a necessity even when financial irresponsibility doesn’t apply. One catastrophic illness (even with insurance) can quickly destroy personal finances. In such a case, the 10 year hit and the 2005 changes aren’t that onerous.
September 25th, 2009 at 1:28 pm
2005 an act passed legislation that now makes it more difficult for individuals to receive a chapter 7 bankruptcies. There are now terms to be followed such as pre-filing credit counseling and post-filing financial education
September 29th, 2009 at 1:41 pm
Personally I would have to say go for the Chapter 13
September 29th, 2009 at 2:28 pm
he said, at least it looks like you ar
October 19th, 2009 at 3:53 pm
I sell homes and have talked to a lot of people who are thinking about Bankruptcy as a way to get out of their mortgage. I hate what the housing industry has caused and try to help as many people as I can with advice. I have recently sent several people to this blog for additional advice. I agree, that Chapter 13 is the preferable choice.
Cheers!
October 21st, 2009 at 3:07 pm
I second the Chapter 13 advice.
October 25th, 2009 at 5:55 am
In developing countries like my country, Indonesia, any of bankruptcy here is better than everyday life for some people
But anyway, articles here is very useful to open our mind.
November 14th, 2009 at 9:07 am
Whether one opts for Chapter7 or 13 depends on the pros and cons.
Chapter 13 at least helps to restore your reputation with creditors and shows that you are a responsible person who is trying to pay up as much debt as you owe as possible.
December 1st, 2009 at 4:08 am
Answered some very good questions about bankruptcy a lot of people don’t know including myself. Good read, thanks a lot.
December 6th, 2009 at 12:15 am
chapter 7 seemeed like it gained popularity lately and i had no idea that it left such a horrible stain on your record. i never undertood the negative side to it
December 9th, 2009 at 1:58 pm
From a real estate mortgage standpoint…you are screwed with Chap 7. With chap 13, you pay what the courts dictate (lawyers) and can still move forward with future credit.
December 13th, 2009 at 2:32 am
I suggest you avoid bankruptcy in either form at nearly all costs. It sucks to try to rebuild your credit; you cannot even rent a car without a credit card.
Fortunately, about 5 minutes after you file, you’ll get a credit card offer. It seems that those companies are always willing to take the risk.
December 18th, 2009 at 11:41 am
thankz, nice article… very helpfull
December 20th, 2009 at 12:02 pm
I did not realize there was a bankruptcy that would allow you to erase all debt. I have never been in the situation but it would be hard for me to not pay people like that. Chapter 13 seems like the way to go if it had be done.
December 31st, 2009 at 7:33 pm
While I agree, sometimes filers are left with no option other than Chapter 7. You’ve got to admit, if the filer has a strong support structure it can be pretty attractive to wipe out all the debt at once.
January 11th, 2010 at 4:40 am
Chapter 7 would be a good choice for someone who can be sure that he won’t require any loans in the next 10 years. I’d pretty much choose Chapter 7, I’ll just make sure that I won’t need much financial help, while i’m labeled as financially irresponsible.
January 20th, 2010 at 11:31 pm
Wish I had read stuff like this before my company crashed. Sigh…..
January 26th, 2010 at 11:56 am
I don’t wanna know any of bankruptcy types… Chapter 7 is like Jesse said a drama. In case Chapter 13 hmmm there is a little hope.
February 13th, 2010 at 4:58 pm
Bankruptcy is a situation which anyone can face in his/her life. And if you fall in this situation you would certainly want the ways how can you come out of this situation. The types of bankruptcy situations which you have mentioned above are very helpful in analyzing your current situation and how can you come out of this situation without loosing much.
February 16th, 2010 at 3:07 pm
I’ll go for the less risky option for sure! =)
But somehow I got experience with some friends who tend to settle the problems through erasing all the things although they what will happen in the future.
March 12th, 2010 at 9:21 am
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April 2nd, 2010 at 3:21 pm
I would like to go for Chapter 13 too, same as Jesse Badger!! Going for Chapter 13 is much more worth than going for Chapter 7, and it’s helpful to your financial problems too.
May 4th, 2010 at 3:55 pm
I think Chapter 7 is much more beneficial to the individual. You can obtain credit again right after it is completed as the banks all know that you won’t be eligible to file again for many years.
A Chapter 13 bankruptcy can take years to complete. It’s almost a prison sentence. You won’t regain control of your financial life until you’ve made the last payment.
May 10th, 2010 at 10:30 pm
Very useful information to know for anyone going into business or considering the risks of going bankrupt at some point in the future. Obviously there are serious choices involved and this gives a good highlight of what to expect.
May 14th, 2010 at 9:12 pm
Working in the mortgage industry, I agree with Jesse. Chapter 7 bankruptcies can make it really hard to refinance, get a new home, and apply for other types of loans. I find it’s easier for Chapter 13 filers to get the loans they need, when they need them, and for a better rate.
May 15th, 2010 at 3:20 am
Before deciding which chapter to file, you will need to evaluate your debt level and see if you have any chance of paying your obligations back. If not, you would certainly need the chapter 7 bankruptcy. Otherwise, chapter 13 would be a much better choice. I recommend consulting a financial adviser first.
May 21st, 2010 at 8:22 am
Hi Claire
I think it’s also important to stress that bankruptcy is a very last resort. Any kind of bankruptcy always stays on your records and may affect you in the future. You should do anything you can to avoid it before filing.
Ste
May 22nd, 2010 at 9:34 am
Chapter 7 is the most severe, can be used by all individuals and businesses. All unsecured debts are terminated, and are paid if any money remains after secured creditors are paid and after various exemptions permitted by law are claimed by debtors. Chapter 13 is typically used by wage earners and small businesses; this delays and reduces amount of payments to creditors over a period of time; this is known as a Chapter 13 Plan, or an individual reorganization. Chapter 11 is used by larger businesses, and resembles a Chapter 13, with may more requirements. If all a debtor needs, is a plan to pay off debts, then a Chapter 13 or Chapter 11 is preferable, rather than a Chapter 7, particularly when trying to reestablish their credit worthiness.