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Chapter 7

The decision to file for bankruptcy is not one to take lightly. With the multiple bankruptcy plans available and the changes to bankruptcy law that occurred in 2005, it is important to be an informed about options from various scenarios. If you are considering filing for bankruptcy but have concerns about what may happen should your income change, here is an overview of the facts.


During these uncertain times, many hard-working Americans find themselves overwhelmed by financial problems. It can happen to the best of people, no matter what tax bracket they qualify for. If you or anyone you know find yourself in these circumstances, it is crucial that all options of relief are considered. However, most people find that filing for Chapter 7 bankruptcy is the best alternative for financial relief.

How It Works

After the current bankruptcy law went into effect in 2005, many people were left with the impression that bankruptcy relief was no longer available or too difficult to obtain. Nothing could be further from the truth.

Like most formidable situations, bankruptcy has earned its reputation based on very few truthful facts and too many false embellishments. The majority of the myths about bankruptcy have begun since the current bankruptcy laws went into effect in 2005. But have no fear, once you know the facts, filing for bankruptcy is not nearly as terrifying as it first appears. Here are some of the most common myths about bankruptcy and what you need to know before you clean your slate.
 
Myth #1: It is difficult to file for bankruptcy.
 

You should find out the experience level of your prospective attorney. Ask how many bankruptcy cases they deal with a year and how long have they have practiced bankruptcy law. Additionally, they should be honest, efficient, and have a great reputation.

Once someone decides to file for bankruptcy, there are several pitfalls they often fall into. Some decide they want to accumulate debt in hopes of having it restructured in bankruptcy. Others ignore their current situation and pay back family and friends or ignore lawsuits filed against them. Others make the mistake of trying to save money and represent themselves in bankruptcy. Some even aren’t completely honest about their financial situation with their lawyer. All are costly mistakes.

The answer to this question primarily depends on whether or not you would like to keep your home. If you are fine with your home being sold to reconcile your debt with the mortgage company, Chapter 7 is probably the right choice for you. If you would like to remain in your home, then Chapter 13 is your desired filing status.

There are numerous myths that people believe about bankruptcy. These include the belief that they will never be able to borrow money again; that both spouses in a marriage will have to file for bankruptcy; and that it is difficult to file for bankruptcy. Other people wrongly believe that filing for bankruptcy helps their credit rating or that they can only file for bankruptcy once.

Qualifying for bankruptcy differs from state to state and is complicated to determine. A means test was recently established to determine who is qualified for what type of bankruptcy. Suffice to say, around 70 percent of people who file for bankruptcy qualifies.

The two types of personal bankruptcy that individuals can file under are Chapter 7 bankruptcy, often called a liquidation plan, and Chapter 13 bankruptcy, often called the debt restructuring plan.