Bankruptcy

Bankruptcy should be the last resort for anyone with debt problems.  Bankruptcy is a federal court process that legally declares you unable to repay your creditors.  There are two types of consumer bankruptcy’s: Chapter 7 and Chapter 13.  Chapter 7, also known as liquidation, sees a consumer surrender all their non-exempt property to a trustee who then liquidates or sells all the property to pay a portion of the debt.  All remaining debts are then discharged and the consumer has a “fresh start”.

A Chapter 13 bankruptcy, also known as a reorganization, see a consumer enter a bank mandated repayment program.  These programs often force consumers to repay 60-70% of the debt balances, sometimes as high as 100%.

The bankruptcy laws were changed in 2005 making it much more difficult to receive a Chapter 7.  Below are the statistics for the years 2002 – 2008.  You can see the huge rise in bankruptcy filings in 2005, just before the laws changed and the major drop in 2006 after the laws were enacted.

Another negative of filing bankruptcy is that your finances become public record.  Anyone can go down to the local court house and get copies of your bankruptcy proceedings, these are sometimes even available online.

Who should consider bankruptcy? Bankruptcy is a good option for some people.  Notably senior citizens or others who are on a fixed income.

Bankruptcy Statistics for 2002-2008