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Home » Business And Finance Articles » There Are Two Types Of Personal Bankruptcy What Are They

There Are Two Types Of Personal Bankruptcy, What Are They?

There are two different types of personal bankruptcy that an individual can file, Chapter 7 & Chapter 13. Chapter 7 allows you to disburse of most or all of your debts at the time of the court ruling. This method, however, has more of a negative impact on your credit rating and will stay with you longerâ€"up to ten years.

People who file Chapter 7 personal bankruptcy are considered to be a much more credit risk then those who file Chapter 13 personal bankruptcy. In a Chapter 13 personal bankruptcy filing you pay off your debts in what is known as reorganization. Through the courts, a court-appointed trustee will determine your new standard of living and how much of your income will be given to you to live on and will divide the rest among your creditors each month.

For the next three to five years, you will have to live on a strict budget while your debts are getting paid. At the end of the reorganization your debts are considered paid in full, however, the record of your Chapter 13 personal bankruptcy will stay on your record for five to seven years.

In order to pay off your debts within the allotted time period, your debts may be reduced and your interest eliminated. You won't be able to obtain new loans or credit without the courts permission while you are on the program, as this would defeat the purpose of the debt reorganization.

One of the main purposes of bankruptcy legislation is to afford the opportunity to a person, who is hopelessly burdened with debt, to free him or herself of the debt and start fresh - "almost like having a new lease on life." By law, all actions against a debtor must cease once you file bankruptcy. Creditors can't initiate or continue any lawsuits, wage garnishees, or even telephone calls demanding payments. Your wife or husband will not be affected if you file bankruptcy, if they are not responsible (did not sign an agreement or contract) for any of your debt.

A number of banks now also offer "secured" credit cards where a debtor puts up a certain amount of money so you can still have a credit card. Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy.

However the fact you file bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is. The truth is, that you are probably a better credit risk after bankruptcy than before.

And here is another random article you might be interested in...

The Pro's and Con's Of Debt Consolidation Loans

You are swimming in debt. You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. Simply making the minimum payments is causing your distress and certainly not getting you out of debt. What should you do?

Some people feel that debt consolidation loans are the best option. A debt consolidation loans is one loan which pays off many other loans or lines of credit.

I'm sure you've seen the advertisements of smiling people who have chosen to take a consolidation loan. They seem to have had the weight of the world lifted off their shoulders. But are debt consolidation loans a good deal? Let's explore the pros and cons of this type of debt solution.

Pros

1. One payment versus many payments: The average citizen of the USA pays 11 different creditors every month. Making one single payment is much easier than figuring out who should get paid how much and when. This makes managing your finances much easier.

2. Reduced interest rates: Since the most common type of debt consolidation loan is the home equity loan, also called a second mortgage, the interest rates will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that they have something they can take from you if you do not make your payment. Credit cards are unsecured loans. They have nothing except your word and your history. Since this is the case, unsecured loans typically have higher interest rates.

3. Lower monthly payments: Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is typically decreased significantly.

4. Only one creditor: With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. Once again, this simply makes controlling your finances much easier.

5. Tax Breaks: Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.

Sounds great, doesn't it? Before you run out and get a loan, let's look at the other side of the picture â€" the cons.

Cons

1. Easy to get into further debt: With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continuing spending habits that got you into such credit card debt in the first place.

2. Longer time to pay off: Most mortgages are the 10 to 30 year variety. This means that rather than spend a couple of years getting out of credit card debt, you will be spending the length of your mortgage getting out of debt.

3. Spend more over the long haul: Even though the interest rate is less, if you take the loan out over a 30 year period, you may end up spending more than you would have if you had kept each individual loan.

4. You can lose everything: Consolidation loans are secured loans. If you didn't pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.

As you can see, consolidated loans are not for everyone. Before you make a decision, you must realistically look at the pros and cons to determine if this is the right decision for you.