Types of bankruptcy and its effects. There are two main categories of bankruptcy-personal and business. Filing for bankruptcy doesn't guarantee all your debts will be eliminated. There are different types...
There are different types of bankruptcies, and each one has its limitations. Just because you file for bankruptcy doesn't mean all debts will get cleared. If you are someone who has been considering filing for bankruptcy, you need to know some important information before you take that first step. Filing for bankruptcy will have a lasting effect on your credit. Diane Wilkman, President and CEO of Springboard, a credit correction service, says first and foremost, know what your options are.
"Business and personal bankruptcy are the main groupings. Personal bankruptcies are by far the majority of the bankruptcy filings. Within the personal category, there are what are called Chapter VII and chapter XIII. Chapter VII is when you get to discharge all of your debts; no fuss, leave it at that. Chapter XIII is for wage earners and generally for people who have assets that they want to maintain. It is a payment plan. By far the majority of personal filings are chapter VII," Wilkman says.
There are certain debts that can't be eliminated when you file for certain types of bankruptcy. Wilkman says many people don't realize this.
"Certain taxes (and the word certain is important because it is possible to discharge taxes in bankruptcy), alimony, child support, loans, debts developing from fraud, and certain fines and penalties are probably the main categories. We've found over the years that divorces are the big drivers of bankruptcy, and at times, unemployment can historically play a part. Overuse of credit and then a financial family catastrophe of some sort like a medical catastrophe or a divorce is something we see that's been a big issue," Wilkman says.
Once you file for bankruptcy, your credit will be affected. You may have to put off getting that car or home you always wanted for a while, until your credit is repaired somewhat.
"Actually, bankruptcy is not nearly as difficult as it used to be, but credit will be available at a much higher interest rate. Bankruptcy can affect unemployment in certain industries like financial services, law enforcement and gaming. It, of course, does affect your credit history negatively. There is a whole lot I can go into about that. Usually, you would not be able to get a mortgage loan, but now we see there are mortgage loan programs to help people get out of bankruptcy. You may need to re-establish credit with a local merchant or something like that, but there are loans of all sorts available after bankruptcy. They are just going to be at much higher interest rates. So it is going to cost you more down the line to rebuild your credit.
Wilkman says filing for different types of bankruptcy will affect you to some degree. There is just no escaping it, so try to find a way you can repay your debts if at all possible. Don't make bankruptcy your first option, but your last.
