According to U. S. court statistics, almost a million and a half individuals in the United States filed for bankruptcy in the twelve months ended March 31, 2010. Deciding to file for relief under the Bankruptcy Code is a serious choice and should involve careful consideration of the available options.
If you have a regular income, a chapter 13 bankruptcy filing may be your best option. Chapter 13 allows individual debtors to keep their property and develop a plan to repay creditors over a three to five year period. Chapter 13 also allows you to keep your home and to suspend foreclosure proceedings if they have begun, although you must make your mortgage payments on time while you’re under the plan. Once you are approved, creditors may not initiate collection proceedings against you. While under chapter 13, your debts are consolidated and you make your payments to a trustee, who in turn pays your creditors.
There are limits to the amount of debt you can have to qualify for filing. You must have had credit counseling from an approved agency within 180 days of your filing. Relief under chapter 13 does not include debts for child support or alimony, taxes, student loans, or fines owed for criminal activity. A chapter 13 filing becomes part of your credit record for seven years and may make it difficult to acquire new credit and insurance in the future, although lenders will look more favorably on a chapter 13 filing than chapter 7, because you are working to pay back the debt.
Two other options for a bankruptcy filing are chapter 7 and chapter 11. Chapter 7 involves liquidation of all except exempt assets and discharges all debt included under the filing, meaning there is no repayment required. If you file under chapter 7 you must undergo a “means test,” an evaluation of assets and debts to verify that you really do not have the money to pay the debts. A chapter 7 filing stays on your credit record for 10 years. The debts excluded from chapter 13 filings, like child support and taxes, are also excluded from chapter 7 filings.
Chapter 11 is a reorganization of a failed business in an attempt to become profitable once again. It is a more complicated and generally more expensive option than chapter 7, but is often used by publicly-held companies.