There are a variety of types of bankruptcy, as well as bankruptcy alternatives, which will have varying affects on a consumer's credit rating.
Deciding to file bankruptcy is a life-changing decision that can take off some of the stress of harassing creditor phone calls and possible judgments against you. However, bankruptcy will also affect your credit report and may make it more difficult to obtain credit-related services. In order to make the most appropriate decision for your needs, you should be well-informed about some of the facts related to bankruptcy and alternatives to bankruptcy.
Alternatives to Bankruptcy
If filing for bankruptcy isn't something you want to do, there are some possible alternatives. Moran Law Group suggests contacting a consumer credit counseling service to help you plan a budget. Additionally, these services can contact your creditors to try to work out plans to lower interest and pay down your debts. In some cases, you may be able to do this on your own by keeping a detailed income and expense journal and working with your creditors to develop a mutually agreeable repayment plan.
Types of Bankruptcy
According to Cornell University, there are two types of bankruptcy. Rehabilitating bankruptcy, which occurs under Chapter 11, 12 or 13, allows the debtor to pay the creditors on a schedule set by the United States Bankruptcy Court. Liquidation bankruptcy, which occurs under Chapter 7, involves liquidating the debtor's assets to pay off creditors. In both types of bankruptcy, a United States Trustee is appointed by the court to oversee the bankruptcy liquidation and/or payments to creditors; however, the United States Department of Justice (USDOJ) states that a trustee may not be appointed in Chapter 11 cases.
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires that anyone who is planning to file bankruptcy must contact a government-approved credit counseling program within 180 days prior to filing bankruptcy. Additionally, a debtor education course must be completed; the Federal Trade Commission states that the credit counseling and debtor education may not be completed together. This is because credit counseling must take place prior to filing and debtor education must take place after.
Items That Can't Be Discharged
According to the USDOJ, some obligations can't be included in bankruptcy filings. These include court fines, criminal restitution, most student loans, child support, alimony, personal injury debts caused by drunken or impaired driving, and most taxes. Collections on these items will continue despite the bankruptcy filings; however, some of these creditors may be willing to work out a repayment schedule that takes your current financial situation into account.
When you file bankruptcy, you may decide that you want to try to keep some of your assets, such as your vehicle or home. In this case, you can work with the creditor to try to work out a payment plan that is mutually acceptable and allows you to keep your assets. The USDOJ states that these agreements are governed by special rules and aren't included as part of the bankruptcy proceedings. The agreement has to be completely voluntary, you must be reasonably able to make the payments, and it can be canceled within 60 days of filing it or until the bankruptcy judgment is issued.
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