Bankruptcy: What Does it Mean?

What exactly happens when you file for bankruptcy, apart from ruining your credit rating for good?

Does the judge just declare your debts forgiven, but if you get a big windfall (lottery, inheritance, etc.) your creditors get first crack? Also, how does one get the ball rolling on such a procedure. Call a lawyer?

I am not a lawyer and I am sure others can give more complete knowledge, but here goes.

Use this as an absolute last resort. It will kill your credit rating for 10 yrs. It will be next to impossible to buy a car, or a house, or much of anything without cash during that time.

You debts are not completely forgiven in most cases. Usually there is some money that is coming in, so I believe that the judge will award the creditors with some sort of payment plan. They may not get all their money, but they will get as much as they can. I am not sure about winning money, but I would not count on it.

Consumer Credit Counseling will offer for free to help you get you debts under control.

Here is a link to one I found, there are branches in most every area.

They can often help you with negotiating with your creditors and not have to file for bankruptcy.

Check it out for more information.


I am not a bankruptcy attorney, but I can give you a general overview. There are 2 types of bankruptcy available to an individual person. Chapter 7 is a liquidation. Just like it sounds, this is a liquidation of all of your assets, except for certain exempt property. (For example, most retirement plans are exempt.) The proceeds are divided among your creditors according to a fairly complicated priority schedule. For example, secured creditors take before unsecured creditors. (Secured creditors are those which have a lien on your property. A mortgage is one example of a lien.) At the end of the Chapter 7 process, your debts are discharged, or wiped out. Any later windfalls (that you didn’t expect or have legal rights to at the time of the bankruptcy) are yours to keep. Certain debts (those involving fraud, some tax obligations and student loan debts) are nondischargeable. (Bankruptcy has no effect.)

The other type of bankruptcy is a Chapter 13, under which your creditors are paid, at least in part, out of future wages.

This is greatly simplified. See an attorney if you want to proceed. Also, I agree with the portion of the prior post which said that bankruptcy should be a last resort, and will harm your credit for 10 years.

Chapter 7 wipes out debt (minus the exempt kind example child support). Chapter 13 you pay off so much on the dollar (10¢ on the dollar etc)

Bankruptcy isn’t all that bad. It no longer carries the stigma it had. You can get loans. A car is really easy as you use the car as the collateral. You will pay higher interest.

Of course it is better not to declare bankruptcy but then again if it’ll take you ten years to pay them off and your credit is all 9’s anyway (1 is the best 10 is the worst.), like I said if it’s bad already it can’t get much worse by declaring bankruptcy.

You can only do this once every 10 years. However you can declare chapter 13 and within the next ten years declare chapter 7.

I think the biggest disadvantage I found (I’ve not declared bankruptcy I have bad credit) was that virtually every decent apartment I look at wants a credit check. The few who will overlook this want like 4 months rent in advance in lieu of the check.

I agree with Random and Markxxx, I’ve declared Chapter 13 bankruptcy. And the discussion at the time was between Ch.7 & Ch.13. But since my problem was with the IRS, Ch.13 was the only choice.
With Ch.7, you basically wipe out your debts, but if you have a lot of assets like cars, boat, furcoats, Rembrants, etc. They will take those to pay your debt. You will have your house and normal livablility (is that a word?) stuff. I think you can protect about $15,000 in personal stuff and they can take the rest.
With Ch.13, it is basically a reorganization type thing, pay off what you can, wipe out the rest. You are on a payment plan and takes 3 years to complete and everyone gets what the court says, like it or not.
I refinanced my house while in Ch.13, and I’ve bought a car and my ex bought a car and even bought one for her son because it was easier than co-signing. Now, unsecured loans like credit cards can be harder to come by.

We went Ch. 13 to avoid foreclosure. We had spent so many years just paying interest that it all finally came to a head. In my state we got to keep one car and the house and everything in it. Everything else was discharged.
After the whole thing was over (36 months), we were bombarded with credit offers. Some one told me that people like us with no debt and good incomes were actually good credit risks, being that we couldn’t file again for 3 years.

A year later we bought a bigger house and got a good interest rate. The only time the so called mark of shame came up was when I applied for my new mortgage, but all they did was ask about it. We never told family or friends what happened, and we continue to live debt free except for our mortgage.

I learned that the only time you should borrow money is to buy a house or car. Otherwise, if you can’t save for it, you can’t afford it.

Bankruptcy also makes you stop playing a game of Monopoly.

e-mail me if you want anymore info on Bankruptcy. I’ve been there :slight_smile:

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