What to Know When Declaring Personal Bankruptcy

The option of declaring personal bankruptcy is being exercised by nearly one million Americans per year. This possibility is available because of the United States bankruptcy laws that were laid down for the protection of borrowers of money. There is a noticeable correlation between economic conditions nationwide and the number of people who file for bankruptcy.

The bankruptcy laws have a number of “chapters” and someone wishing to declare bankruptcy needs to select the right chapter. Personal bankruptcy is generally dealt with under chapter seven or chapter thirteen. Exceptionally, for example in the case of owning a family business, chapter twelve may be more appropriate.

To exercise your right to file for bankruptcy under chapter seven, you need to accomplish a certain number of actions. First of all, the use of chapter seven cannot be more frequent than once every seven years, and there is a cost of about $300 for the fees for administration. To present your case to the court, you need to make a complete inventory of your possessions. A trustee who will be appointed for you then liquidates these possessions and the money raised will be divided between your creditors. In essence, by doing this you strike a line through all of your debts.

Using chapter thirteen, instead of chapter seven for declaring personal bankruptcy, means that you do not liquidate your assets, but instead you work out a system where you pay off your debts over an agreed period of time. The notion of a trustee is still valid although in this case it is in order to have an interface between you and the people to whom you owe money. You pay a pre-agreed sum of money every month to the trustee, who then apportions this to each of your creditors.

Personal bankruptcy does have some other conditions that must be observed. In particular, for chapter thirteen total debts must not exceed $750,000, and in this case they must be secured. If they’re not secured, then the maximum amount is $250,000. Chapter thirteen is also more favorably viewed by financial institutions for an obvious reason: you are making greater efforts to pay off all of your debts.

It’s also as well to understand why the personal bankruptcy laws exist. The stated goal is to help an honest debtor make a new start. It’s clear that the approach is founded on the sincerity of all parties concerned. Depending on the state in which you declare bankruptcy, you’ll find that there are different exemptions concerning what you can keep throughout the bankruptcy proceedings. In some cases, you may even have the option to exercise federal exemptions instead of those of the state.

Because people often file for bankruptcy when they are no longer able to pay off their bills, one of the frequent questions is whether this process can stop creditors from calling. It is advantageous to know the process is designed to prevent creditors from taking any further action in terms of debt collection. It will possibly take two or three weeks for the court bankruptcy information to reach the creditors that you have identified when you filed your case. Upon declaring personal bankruptcy, you can also inform your creditors yourself and give them your case number.