Bankruptcy can be a way out for those individuals or businesses, who can no longer pay their creditors. It is a federal law based judicial course of action by which a debtor can get respite from his/her debts. However, in some bankruptcy cases, your assets can be used to pay off your debts.
Though federal courts have exclusive jurisdiction over bankruptcy cases, certain cases are dependent upon state laws where claims and exemptions are coupled.
When it comes to filing bankruptcy, you come across several options. Choosing the right option for your particular situation is always very difficult. An experienced attorney can help you with your bankruptcy filing after analyzing the type of debt, your disposable income and your assets.
To begin with, the two most common types of consumer bankruptcy that you can consider are Chapter 7 and Chapter 13.
Chapter 7: Straight Bankruptcy/Liquidation: Chapter 7 is basic liquidation bankruptcy for individuals and businesses. This is also referred as straight bankruptcy as this is the simplest and fastest form of bankruptcy available.
Chapter 13: Adjustment of an Individual's Debts: Chapter 13 bankruptcy is a court determined repayment plan for individuals having a steady source of income. In this kind of bankruptcy, a debtor usually repays some or all of his/her debt.
The length of time that a bankruptcy proceeding may take completely depends upon the type of bankruptcy that a petitioner selects. If you are opting for Chapter 7 or ‘liquidation’ bankruptcy, it’d take around four to six months to complete. However, if opting for Chapter 13 bankruptcy, the completion period is relatively higher. As per federal law, the maximum period that is allowed for the completion of a Chapter 13 plan is anything between 36-60 months.
Bankruptcy filing can have disastrous effects on your credit score and will stay there in your credit report for long 10 years. This is why it is always advisable to seek professional bankruptcy advice before you file. However, if you are thinking of filing for bankruptcy, it’s obvious that you are far behind on your payments, and your credit score is already in a bad shape. If you have late payments and unpaid debts, it’ll stay there on your credit file for 7 long years. Nevertheless, if you file bankruptcy, it doesn’t necessarily mean that you won’t be able to acquire credit within or after the 10 years period.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which came into effect from October 17, 2005, vastly amended the U.S. Bankruptcy Code. This act made numerous changes to the bankruptcy law, thus making it much more complex and unattainable than ever before. BAPCPA has drastically changed the bankruptcy process and rules by introducing some complex pre bankruptcy hurdles like credit counseling, financial management, tax returns, and most importantly - the means test.