The Pluses and the Minuses Of Bankruptcy Filing

The concept of personal bankruptcy means that the consumer has no way of paying his debts. All his assets are already rented or have outstanding loans on them. In such a case the consumer can decide to file for personal bankruptcy.

Filing for bankruptcy is an extremely personal and important decision. If the person, he or she, believes that filing for bankruptcy will get them out of the debt crisis in a jiffy, they may be in for a surprise. There are pluses and minuses of bankruptcy filing. A debtor can file for personal bankruptcy under two different sections. Chapter 7 and Chapter 13.

When a consumer files bankruptcy under Chapter 7, all his assets (which he or she owns) are valued to convert them to cash. This procedure in undertaken by an authority appointed by the court and under the supervision of the court. Liquidating these assets generates cash that is then distributed amongst the creditors. Certain assets are exempted from this rule.

When the consumer files for personal bankruptcy under Chapter 13, he or she can give an application wishing to retain certain assets that are not exempted under the bankruptcy provision. In such a case, the court prepares a compensation plan for the debtor, which has to be paid over a certain period of years. This way the consumer gets a temporary relief from the creditors. Even the creditors are content with the fact that, they are getting something rather than nothing from the debtor. The rules and regulations of the mode of payment and its duration is decided by the court and agreed upon by both the parties. All the financial transactions of the consumer are frozen once he or she files for personal bankruptcy. The court sends the notices to the creditors to stop their actions of collecting the debt from their debtors. The court now handles all modes of communication between the creditors and the consumers. If during the bankruptcy period the financial condition becomes better or worse, he or she should inform the court regarding the same.

Your credit report suffers when you file bankruptcy. The "bankruptcy" tag stays on the report for 8-10 years. For this time period, the debtor cannot apply for any new loan or a mortgage. Debt settlement is a much-preferred option to filing personal bankruptcy. If the consumer starts some productive employment after his or her bankruptcy term is over, he or she is eligible for all other financial benefits again.

Debt settlement can make financial sense for consumers and small businesses that are experiencing a financial hardship and have at least $10k in unsecured debt. It is not the only option however. Check out the following link to speak with a debt relief specialist that can go over all your options for free.