Over the last two years, millions of Americans have lost jobs, suffered paycuts, and had working hours
reduced. These dire economic circumstances have led a record number of people into foreclosure and
millions into bankruptcy. Although bankruptcy should always be an absolute last resort, at times it can
be the best decision. Of course, this decision should be made in conjunction with a bankruptcy attorney
and other financial professionals in order to ensure that bankruptcy is, indeed, the best decision.
If you have decided that bankruptcy is the best way to handle your financial situation, there are typically
two paths—Chapter 7 and Chapter 13.
This is the type of bankruptcy most people tend to be familiar with. In a Chapter 7 proceeding, a person
turns all property and cash to a bankruptcy trustee who then distributes it to creditors. Several months
later, the debtor will typically receive a discharge of all dischargeable debts. Then, the debtor essentially
begins with a “fresh start.” However, a Chapter 7 bankruptcy will remain on a person’s credit history for
10 years and it will be public record.
This type of bankruptcy is significantly different than Chapter 7. This type of bankruptcy is generally
referred to as a reorganization bankruptcy, and it involves a restructuring of a person’s debts, including
small business loans if the person is a sole proprietor, so that he or she can repay the debts in a period
of three to five years.
People who own a home and other non-exempt assets often prefer this type of bankruptcy. Chapter 13
has several advantages to Chapter 7. First of all, the bankruptcy will only be on a person’s credit history
for 7 years instead of 10. Second of all, a person will be able to keep non-exempt assets such as a home,
car, etc, whereas a Chapter 7 filer must surrender all assets to the court.
A primary advantage of both types of bankruptcy is to escape the immense pressure of significant
debt. In both instances of bankruptcy, a person will be immediately freed from harassing creditors and
Bankruptcy should never be considered lightly. It is often described as a very painful and difficult
process, and it should only be considered in the company of financial and legal professionals.
Bankruptcy should definitely be considered as a last option.