Chapter 7 Bankruptcy is Most Frequently Used by Individuals.
Chapter 7 is the simplest, most straightforward form of bankruptcy. The law permits families to keep certain property so that they can continue to function in society. Chapter 7 can be filed by individuals, couples or businesses. It causes unsecured debt to be discharged (wiped out) but leaves secured and priority debts largely in place. Unsecured debts include credit cards and signature loans. If the debt has collateral against it, then the debt would be secured. Examples of secured debt include in-store purchases of goods where financing is arranged by the store, auto loans and home loans. Priority debts are usually those that cannot be discharged through bankruptcy, like child support obligations, criminal penalties and some taxes. Even though persons filing bankruptcy are required to list all of their creditors in the petition, there is no guarantee that all of their debts will be wiped out.
What happens to my credit rating?
Most people regain credit within two years after they complete their bankruptcy case by demonstrating good payment habits following their bankruptcy. By making these payments on time each month, good credit is being reported on their behalf. So, with most of their old debt discharged and nothing but on time payments being reported for the past two years, many ex-bankruptcy debtors find themselves having good credit again. You want to be sure to make your payments on time to recover from bankruptcy.
What is ‘in good faith’ Bankruptcy?
All bankruptcy filings are required to be ‘in good faith.’ This requirement comes from Congress’ intent that bankruptcy may be used to give people a fresh start after some event, or series of events, left them in financial straits. (The U.S. Congress, Bankruptcy Code, Title 11 of the United States Code). Congress considers the balance of power between creditor and debtor interests, and is able to maintain fairness in the balance by virtue of its power to make and amend these laws. Bankruptcy is not intended to give debtors an unfair advantage over their creditors. It is not intended to protect people who have acted deliberately to cause harm to others. Bankruptcy is intended to help honest debtors, who would otherwise exist under an unrelenting burden of debt, get back on their feet. Congress’ rationale is that it is better to have a mentally healthy and productive population than to punish people for years for their financial mistakes.
What Are Some Reasons for Filing Bankruptcy?
- In Good Faith Filings: Unemployment caused by layoff or illness. Debts left over from an ill fated attempt to start a new business
A temporary disability that becomes permanent
- Less than Good Faith Filings: Living off lines of credit and credit cards when it is apparent you will not be able to pay back the increasing balances.