Bankruptcy FAQ #1

What is Bankruptcy?
Bankruptcy is an option made by many people to eliminate debt. The number of bankruptcies filed has increased in recent years. In most situations a bankrupt can be discharged in as little as one year. There are restrictions and procedures to follow but this option for debt relief can offer a fresh start and rid you of overwhelming debts and provide you other benefits. The cost of filing bankruptcy can vary depending on your situation. The actual thought of filing bankruptcy can be frightening but is actually in most situations a great way to protect you and your financial future. Bankruptcy is handled in a local county Court and mainly dealt with by an appointed official of the court. The process is fairly simple and designed to help those who cannot find financial stability on their own.

What is the difference between secured and unsecured debt?
Secured credit cards operate based on the cardholder making a deposit first or paying an application fee. The amount of deposit and credit available will vary depending on the lenders requirements. The cardholder is to make regular payments. If they would not make a required payment the creditor may take the deposited amount. This can be an advantage to someone who needs to build or rebuild their credit if they keep the terms of the card. Most often a secured credit plan will have higher interest rates because the borrower may not have a good credit score to begin with. People with little credit or no credit can usually get a secured credit card.

Unsecured credit is an open line of credit that usually has a set amount available to the borrower. You do not have to make a deposit for unsecured credit. You can use this form of credit to purchase goods and services on the “promise” you will pay. The creditor may do periodic credit checks and have other requirements for approval. The interest rates vary. If you default on any credit card there are penalties.

In both situations the creditor has requirements and restrictions as well as payment expectations. Credit reports don’t always show if the credit is secured or unsecured so you have the opportunity to increase your credit score with either card provided you keep the account in good standing. Since your credit rating has such an impact on everything these days, it is important to use credit wisely.

Which kind of bankruptcy should I file?
In most cases an individual will either be filing a Chapter 7 or a Chapter 13 bankruptcy. The difference between the two Chapters is the repayment of debt. The Court may order you to repay a portion of the debt owed in a Chapter 13. This would be decided based on the amount of monthly income after a reasonable amount of living expenses is deducted among other investigation of current assets and liabilities. A Chapter 7 is often a faster process but a Chapter 13 might allow you to keep an interest in property or other valuables you own. There are other options if you would need to file bankruptcy as a company.

Can I change from one chapter of bankruptcy to another?
In certain situations if you started out in a Chapter 13 bankruptcy and you are still unable to gain financial stability the bankruptcy can be changed to a Chapter 7. There may be other situations where a bankruptcy can be altered or appealed for changes. The decision to change must be discussed with your Trustee and the change will only be made if the Court sees fit. They will review your information and any changes that may have come into the situation in order to make this decision.

Who can file bankruptcy?
Anyone can file bankruptcy. Individuals, partners and companies can file for bankruptcy. There are different forms of bankruptcy that have a set of guidelines. There are certain requirements that must be met and fees that must be paid to file. Some good reasons to file bankruptcy might include someone who has no assets to protect, negative equity in their home, or simply has no other option to regain financial stability. There are many causes for financial instability like loss of employment or serious illness and only you know when you need to get help, but you should seek advice as soon as you are concerned because sometimes waiting will only cause more problems. You should thoroughly examine your current financial situation and look into all the options you have. If there are no changes in the near future to regain the stability then bankruptcy might be the best option for you. Seek advice from financial advisors to get a better idea if bankruptcy is right for you and learn more about the process.

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