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Filing for bankruptcy can be a lifesaver for an individual or company caught in a bad debt situation, but it can also follow around after you later and impact on your life for many years. Prior to taking such a step, it is wise to research other available options to avoid a bankruptcy, if possible. There are many companies that can assist you in preparing a debt repayment plan that you can afford without going to the extremes of a bankruptcy. These companies do collect a fee for their services, but oftentimes can reduce your debt by a substantial amount. There are some restrictions, such as the amount of income you make and the value of any property you own, which will affect whether or not you are eligible for a repayment plan.

However, if filing for bankruptcy cannot be avoided, you should consult with a legal professional to determine which chapter is the best for you.

You should also know that once you file for bankruptcy, you will be protected from continual collection attempts by the “automatic stay” that is put into effect upon filing. This also includes existing lawsuits, auto repossession and wage garnishes. You might even be eligible for money damages against any creditors that continue to attempt to collect from you after filing.

This automatic stay is in effect until your bankruptcy matter is completed. However, be aware that there are circumstances under which a creditor can apply for and obtain a Court order granting their relief from the stay, as in the case of an existing lawsuit that may be close to final disposition. The creditor would need to make a motion requesting the relief and it would be ruled on by a judge.

Once you have filed for a bankruptcy it is, obviously, much more difficult to obtain credit of any kind. For instance, should your car breaks down necessitating that you purchase a new vehicle, you might have difficulty. It can be nearly impossible for someone presently in bankruptcy or just after the discharge of a bankruptcy to obtain a car loan, and if you can get a loan, it is often a ruinous rate of interest. However, once your bankruptcy is discharged, a car loan is one of the best ways to reestablish your credit, provided you are consistently on time with your payments for at least a 6-12 month period.

A bankruptcy will remain on your credit history for seven years and can create issues when attempting to obtain credit for at least that time frame. Furthermore, there are more and more credit reporting services available, and there is nothing that requires them to stop reporting your bankruptcy after the seven years have passed. Therefore, once your bankruptcy has been discharged, it is a good idea to get regular credit reports from several different agencies to determine the status of your credit score. You may also want to write to the different agencies upon completion of the seven years to request that they remove the bankruptcy information from your credit report.

What are the different types of Bankruptcy?

There are four different types of Bankruptcy, Chapters 7, 11, 12 and 13, based on their respective chapters in the United States Bankruptcy Code. The type of Bankruptcy one would file depends upon their status, as well as other factors.

An individual or business wishing to erase excessive secured and unsecured debt would file a Chapter 7. This is the most acute form of bankruptcy and is generally preferred when people have a lot of unsecured debt, and little or no property. Under a Chapter 7, all non-exempt assets are liquidated, unsecured debts are terminated and any secured debts are paid. If there are additional funds after the payment of secured debts, unsecured debts are then paid. In 2005, some changes to the Bankruptcy code were made and applicant must now pass a “means test” to determine their eligibility. In order to file Chapter 7, you must earn less than the average income of your state or, if you earn more, your excess income is insufficient to cover the cost of your debt AND repayment of 25% of unsecured debt over a 5 year period. Not all debts are discharged under a Chapter 7. Alimony or child support judgments and any state or federal tax owing are exempt. Also, if you own and keep your home and car, those payments must be made.

The most complex form of Bankruptcy is the Chapter 11. This filing is most often the type filed by large businesses who find themselves in excessive debt. An individual can file Chapter 11, however, it is generally considered more for corporations who will create a reorganization plan to pay back their creditors while the business itself continues to function. In a Chapter 11, the corporation or individual will retain control and ownership of all corporate assets during the course of the bankruptcy. Prior to the changes made in 2005 to the Bankruptcy code, businesses could take all the time they needed to reorganize and create a payment plan. Now, however, they are subject to a 120-day time limit by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and if they do not submit their plan within that time, their creditors can submit the payment plan.

The Chapter 12 Bankruptcy deals only with farm owners, who are able to own and control their own assets while they work out a payment plan with their creditors.

Finally, the Chapter 13 Bankruptcy is much like a Chapter 11, however, it is used by individuals or small businesses, who will still control and own their assets while repaying their debt. Generally, a three to five year repayment plan is created and a specific portion of their debt is discharged, based on the debtor’s income. Basically, the plan reduces the amount of debt and the amount of the payments due, in order to allow an individual to pay back their creditors within a certain time frame. This plan is preferable to a Chapter 7 as an opportunity for a debtor to pay back their debts rather than write them off, as it can make it easier to then reestablish credit. In order to be eligible, the debtor must have a regular source of income, less than $250,000 in unsecured debt and $750,000 in secured debt, and their debt must be for a fixed amount that is not subject to other conditions.

Filing for bankruptcy is a difficult decision. It affects your credit, your financial future and your pride. Every individual financial situation is different, and depends on the amount of debt and the ability to pay it back. If you are someone who has exhausted all of your financial resources and have no other options, filing for bankruptcy may be a viable solution.

But before you call the nearest law office or sign the final papers, here are a few important things you need to know before you file:

• Certain debts are unforgivable. Certain kinds of debts can’t be forgiven under bankruptcy. These debts are required to be paid back regardless of financial circumstance. Alimony and support obligations, student loans, drunk driving repayment, and debts acquired through financial fraud are unforgivable.

• There are alternatives to bankruptcy. There are plenty of alternate strategies to battling debt. Loan consolidation is often a good and reasonable solution. Combine all of your debts into one single loan so that you will only be making one payment to one lender per month. Contacting your creditors and asking for their cooperation can also result in better pay arrangements and/or options. Most creditors are willing to work with you rather than against you because their ultimate goal is to recoup the money that is owed to them. There are also many credit counseling services available nationwide to help assist you in overcoming financial problems or difficulties.

• Different states equal different laws. Bankruptcy laws differ from state to state. It is vital for you to research the bankruptcy laws that are applicable to the state which your reside. Do your homework or hire a lawyer who specializes in bankruptcy and can research the laws for you if you feel unprepared to do so. You’d be surprised at how much information you can gather just by going on the Internet or by visiting your local library.

• What is Chapter 7 bankruptcy? Chapter 7 is the “end all, be all” to financial debts. This means that you are essentially writing off your debts with absolutely no intention of paying them back. Unfortunately, by filing for Chapter 7, you will also severely hinder your ability to secure any credit for at least three years. You should not file for Chapter 7 if you anticipate any need for credit in the near future.

• What is Chapter 13 bankruptcy? Chapter 13 is actually a renegotiation of your debts with the understanding that you will, in fact, be paying them back in a timely fashion. Once your Chapter 13 debts are satisfied, you will be able to once again apply for credit. Chapter 13 “survivors” are usually able to secure a loan within as little as two years after reestablishing his or her credit reputation by maintaining an excellent repayment schedule.

If you are considering bankruptcy, it is extremely important to take all of this information into consideration before making the decision. Bankruptcy is a serious step, one that shouldn’t be taken lightly.

Repossession is the act taken by the seller who, because of the debtor’s default in making payments under a specific loan arrangement, is allowed to go ahead and repossess the item or property.

If you default on a loan or discontinue making payments, the creditor who has a right to own the item will mostly likely hire somebody, otherwise known at the “repo man” who will take the steps needed to obtain the property under legal means. This is usually done in agreement with the type of contract signed when the consumer agreed that the seller had the right to repossess the object if the signers are past due on their payments. Generally, the grace period for prime lenders is 30 days. Contracts granting repossession also usually specify additional fines that the consumer will have to pay the seller to cover the seller’s costs of repossession and the deflated value of the object or property. Most lending companies usually don’t want to have to go through the repossession process because it is a hassle.

After the property or item is repossessed, it can be sold commercially in order to pay off the debt the creditor is owed. Any shortage in the money made from the sale can also be collected from the debtor even if he doesn’t have it anymore. However, a lender cannot take possession of the good unless the borrower has defaulted on the loan. Furthermore, a notice must be given detailing the nature of the default.

Repossession is a complicated matter because of varying state laws. In the United States, a consumer can avoid repossession simply by declaring bankruptcy or by presenting his or her financial arrangements to the court in hopes of forgiveness.

Bankruptcy and repossession are negative events and they both directly affect a consumer’s credit report.

Dealing with repossession can be both embarrassing and challenging. The most often misconception about repossession among consumers is that once your property is repossessed, your debt is forgiven. But when you apply for another loan and are denied it is most likely because of a note on your credit report signifying that you defaulted on a loan, the amount of the loan and the existing amount. Though you may think you could start fresh, the legal responsibility for the loan still exists.

In order to avoid repossession, contact your lender and see if they are willing to work with you. Some creditors or sellers may even allow you to skip one or more payments per calendar year, which will then be added onto the end of your loan. Other creditors might even allow you to refinance your loan over a longer period of time, which will lower your monthly payments. You should try to do whatever you can in order to get your financially footing back underneath you. If the situation has gotten so out of hand that you are now facing repossession, contact a lawyer who can provide you with proper legal advice.