Effect of Bankruptcy on Debts
Bankruptcy cannot be far behind if you have not managed your finances well and if you don’t qualify for other debt relief options. When you are in debt, you may be exploring all possible ways to stay away from bankruptcy. And the fact is many options have come up that can serve as an alternative to bankruptcy. However, filing for bankruptcy is no longer a simple process. You have to be eligible to file bankruptcy. Earlier you could do so as per your convenience but according to the New Bankruptcy Law which became effective 17th October 2005, you have to consult a credit counselor before you can file bankruptcy.
Good credit score and bankruptcy cannot be simultaneous
When all other debt relief options have failed to get you out of debt, bankruptcy can be your savior. Undoubtedly, bankruptcy ruins your credit score and it haunts your credit rating for a period of 10 years but you have to compromise at some point. And getting fresh credit with favorable terms may be a far cry once you file bankruptcy. You cannot expect to file bankruptcy and simultaneously keep your credit score unscathed.
Filing for bankruptcy will not only help you to get out of debt but it will also allow you to make a fresh start financially. There are different types of bankruptcy but the most widely availed are Chapter 7and Chapter 13. In both the cases, your debts will be treated in a different manner.
How your debts are treated in Chapter 7 bankruptcy?
In Chapter 7, which is also known as “liquidation”, your assets are sold off by a court appointed trustee so that your creditors can be paid off. Not all assets are sold off; you are allowed to retain some of your assets. They are referred to as “exempt property” or property that is spared from liquidation. It can be your car, home etc. However, property that is not exempt should have enough equity so that by selling it, your creditors can get paid for your outstanding debts. There are state as well as federal exemptions and you can avail either state exemption or federal exemption but not both. Exempt property differs from one state to another. Not all debts are discharged when you file Chapter 7 bankruptcy. Usually your unsecured debts can beeliminated in Chapter 7 bankruptcy.
How your debts are treated in Chapter 13 bankruptcy?
When you file Chapter 13 bankruptcy, you don’t have to give away your assets or property. You will be given a debt repayment plan and you are expected to pay off your debts within a span of maximum 5 years. You are required to have a stable income that will enable you to pay every month. The repayment plan is valid once it is approved by the court. The most common types of debts that are consolidated in Chapter 13 include outstanding balances on auto loans, mortgage arrears, credit card debts, student loans and unsecured debts. As a rule, all outstanding debts should be included when you are consolidating debts in Chapter 13 bankruptcy.
Debt consolidation – The Australian Lending Centre is a specialist in debt consolidation and a leading supplier of financial services including home loans, refinancing, personal loans, business loans, investment loans and debtor finance.
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