More For Your Money - University of Illinois Extension

http://MoreForYourMoney.extension.uiuc.edu

Bankrutpcy - A Last Resort

Bankruptcy is a legal procedure that can help you when you're completely overwhelmed by debt. With a Chapter 7 bankruptcy, your non-exempt assets and sold and debts are either paid with this money or discharged. You don't pay discharged debts. With a Chapter 13 or Chapter 11 bankruptcy, the court will approve a repayment plan that allows you to pay back part of your debt over time. The remaining balances may be discharged.

Think carefully before you declare bankruptcy. Bankruptcy can stay on your credit report for up to 10 years. This means that you may not get a loan when you need it or that the loan will be at a higher interest rate. A bankruptcy can also affect your ability to rent an apartment, open a checking account, or get employed.

Be aware that not all debts are discharged with bankruptcy. Be sure you understand which debts you're still responsible for before you file. Some debts that may be exempt from bankruptcy include:

  • Alimony
  • Child support
  • Student loans
  • Taxes
  • Debts based on fraud
  • Fine
  • Damages caused by drunk driving

The Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005. Because of the new law, you must have pre-counseling with an accredited counselor before filing. After filing, you must complete a debtor education course. Check with the U.S. Trustees website, www.usdoj.gov/ust/eo/bapcpa/index.htm, for more information and a list of approved agencies providing counseling and debtor education.