Until you can tell the difference between Chapter 7 and Chapter 13 bankruptcy cases, you should hold the decision of filing the petition. Today, it is not infrequent that irresponsible consumers use their credit cards in such a bad way that bankruptcy is often the result.
Besides, it is not prohibited to restart your credit history and improve your credit score once you are though with the bankruptcy proceedings. Smart credit cad holders know how to use this provision to their advantage and they do come back on the right track of credit cards use and regain their financial health. But there are still some desperate customers scared by the bankruptcy situation so much that they commit vexing mistakes when filing. Debtors need to have sound advice on how to file the petition to male the process less painful.
We have two examples when people with a rather favorable payment history and stable financial background kept on misusing their good credit cards until they found themselves persecuted by debt collectors and facing home foreclosure and car repossession.
For both, it is equally a most unpleasant situation, but their individual stories and their outcome are quite different. Michael is a successful small business owner who went over the limit on his Discover Business Card and accumulated high interest rates due to late and insufficient payments. Having no one to borrow money from and being unable to repay the huge debt, he ended up facing home foreclosure.
July, a designer, is a frequent traveler and a fan of collecting point miles. But she missed the simple rule of a rewards credit card use - spend as much as you can and make more than the minimum monthly payments.
So she made a substantial credit card debt. The balance transfer which she resorted to, only took her into a deeper debt spiral. But having more than the average income and, what's more important, many relatives to borrow from, July was evidently in a different situation.
Both knew that filing bankruptcy would bring relief but how to best file the petition and what chapter to go under to make the process less painful wanted clearing-up.
As a matter of fact, both the debtors have to be aware of the following points:
- Chapter 13 Bankruptcy would be the best variant for July as the additional source of money allows her to apply and complete a 3 to 5 year repayment plan to kill the debt. At the same time she can carry her regular payments on the mortgage and the car loan.
- Michael will find relief in Chapter 7 Bankruptcy mostly because he doesn't have enough means to accomplish a debt repayment plan. Under the provision of this Chapter, the debtor is exempt from all the legal proceedings to take money and property, such as home, away from him or her. However, the nonexempt property is still to be sold and the creditors are to be at least partially paid in the order of priority.
- No matter what Chapter Bankruptcy Michael and July file under, they are entitled to the bankruptcy automatic stay. Under its provision, all the phone calls and letters from creditors and debt collectors must stop. No legal action can be taken against you to obtain your money and whatever property you have. The stay gives you some period of time to gather up and think of the chances and strategy together with your trustee without the interference from the creditors. Debtors should know that a creditor insisting in their efforts to collect the money and property, ignoring the automatic stay, display a contempt of court.
- Whether July or Michael file under Chapter 13 or 7, they are not deprived of the chance to rebuild their credit rating and be approved for other types of loans in the future, provided they receive a bankruptcy discharge. This point is of special interest for those debtors who plan to buy a house after going through bankruptcy. The most important thing for all who undergo bankruptcy is to be able to regain their credit worthiness in the eyes on the lender.
The last point should give some cheering up to the debtors but it doesn't mean that if someone has big credit card problems he or she can easily file bankruptcy to get discharged. Not so fast. Remember that bankruptcy is always a very negative thing for one's credit rating and overall financial background and it takes a long-long time or disciplined credit card use to be recovered.
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