The Basics of Filing for Bankruptcy

Is the stress of being in debt becoming overwhelming? If you are ready to take your life back and start fresh, bankruptcy might be the right option for you. The stigma attached to personal bankruptcy is becoming less harsh as more and more Americans face debt problems. More than half of Americans are spending more than they bring in each month, bringing personal debt to an all-time high.

In the United States you can choose to file Chapter 7 bankruptcy or Chapter 13 bankruptcy. This article should not be used in place of legal advice, but it will give you enough information to decide if bankrtupcy - and what type - is the best choice for your current financial situation.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is what most people think of when they consider filing for bankruptcy. With a chapter 7 bankruptcy, you essentially clear all your debts, starting with a clean slate. This type of bankruptcy is also often referred to as a liquidatio bankruptcy because you will be required to liquidate your assets in order to pay down your outstanding debts. However, most individuals who file for Chapter 7 bankruptcy do not have any assets to liquidate so this first step is skipped.

Not all types of debt can be discharged through a Chapter 7 bankruptcy. If you have certain tax debts, student loans or child support payments, you will most likely still be liable for these debts after your bankruptcy is complete. Medical bills, credit cards, repossessed vehicle loans, payday loans, court judgements and wage garnishments are almost always cleared by filing a Chapter 7 bankruptcy. If done correctly, this process should take just a couple of months.

Chapter 13 Bankruptcy

Individuals who want to retain their assets often choose a Chapter 13 bankruptcy. With this type of bankruptcy most of your debts are not cleared, but you will establish a payment plan to begin repaying what you owe. In order to file for Chapter 13 bankruptcy, you must have a regular, predictable monthly income each month after expenses.

With your payment plan in place, you will be able to make up missed payments on assets (home loans, car loans and other personal debts), prevent foreclosures on certain assets, stop interest from accruing on tax debts and pay back taxes. You will be paying the creditors what you owe them, but they will no longer hound you because you will have an established repayment plan approved by the bankruptcy court. If you arent willing to part with your assets in order to clear your debts, Chapter 13 bankruptcy is most likely the best bankruptcy option for you.

Requirements for Washington State Bankruptcy

Different requirements are in place for Chapter 7 bankruptcy and Chapter 13 bankruptcy. However, there are still some requirements in common. First, you must complete a credit counseling session prior to filing for bankruptcy. This credit counseling session should take less than an hour and can often be done online, on the telephone or in person. There are exemptions to this requirement, but they are rare. In most cases, if you do not complete a credit counseling session your bankruptcy will not be filed.

The credit counseling session must be administered by a court-approved agency. To be sure that an agency is approved by the bankruptcy court, check with your lawyer or appointed bankruptcy trustee. This session will help you explore alternatives to bankruptcy and discuss your current financial situation.

Another requirement that Chapter 7 bankruptcy and Chapter 13 bankruptcy have in common is the completion of a post-filing debtor education course. Unless you receive a court-approved exemption, this course must be completed before your bankruptcy can be finalized. This session must also be conducted by a court-approved agency.

Lasting anywhere from 30 to 90 minutes, the debtor education course will help you learn healthy financial management and create a realistic budget. Like the credit counseling session, this course can also usually be completed online, via telephone or in person. Debtor education courses are in place to educate those filing for bankruptcy about personal finance so that they can avoid future debt problems.

Bankruptcy Alternatives

During your pre-filing credit counseling session, you will discuss alternatives to filing for bankruptcy. Most likely you will also want to do your own research and talk with your lawyer regarding these options as well.

Some individuals will benefit more from a debt consolidation loan. If you have equitable assets, you might choose to apply for a secured debt conslidation loan. If you have no assets with equity, you may qualify for an unsecured debt consolidation loan.

Another alternative to bankruptcy is to create and follow a debt management plan. You should work with a qualified and trusted credit counseling agency on this. Again, your attorney can help you find a good resource for debt management. The credit counseling agency will work with your creditors to settle your debts. You will agree to a repayment plan and make these payments to the agency each month. The agency will then pay your creditors on the established schedule.

In most cases, a credit counseling agency can reduce your debts so that your overall repayment is completed with a few years. These debts will still appear on your credit report, but collection attempts will be ceased by any creditors with whom the credit counseling agency is working. This can alleviate much of the stress of being in debt and help you to improve your overall credit rating in the long term.

For some people, bankruptcy is the best alternative to alleviating an overwhelming amount of debt. If you are stressed out, you can remove that stress quickly by working with an attorney to decide the best way to lower or elminate your debt.

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