Bankruptcy Options

Bankruptcy can be a great alternative for individuals and businesses in desperate need of financial relief. Filing can provide borrowers with clean financial slates either by discharging debt so that the one no longer is liable for its repayment, or by instituting a realistic repayment plan under the discretion of the bankruptcy court. These opportunities, of course, come with some costs, and it is imperative that filers turn to bankruptcy only as a last resort.

Filing bankruptcy is a very serious move, and you must consider your options in comparison to your financial future. Bankruptcy will be listed on your credit reports for ten years (three years more than more than most negative items), it may affect your ability to get credit or loans, and it may affect your ability to file bankruptcy in the future.

If bankruptcy truly is the only choice for your situation (and certainly there are situations that qualify), then you should decide with a bankruptcy professional which type of bankruptcy is best for you. There are two main types: liquidation and reorganization.

Liquidation bankruptcy results in a discharge of debt so that the filer no longer is liable for repayment. Property of the filer is "liquidated" and then sold, to pay off as much of his or her unsecured debt as possible. Debts that remain after the liquidation generally are discharged.

The goal of reorganization bankruptcy, on the other hand, is to rid oneself of debt by following a court-ordered repayment plan to creditors. Depending on income and debt load among other financial factors, any number of one's creditors may receive payment in full, partial payment, or no payment at all. Debts left unpaid generally are discharged.

There are four common forms of bankruptcy filings: Chapter 7 (liquidation for individuals and businesses), Chapter 13 (reorganization for individuals), Chapter 11 (reorganization for individuals and businesses), and Chapter 12 (reorganization reserved for individuals in the farming and fishing industries).

No matter which form you choose, it is important to understand what bankruptcy can - and cannot - do for you. It is very good for getting rid of credit card debt, for example, but some debts are considered almost obligatory, and therefore very rarely are discharged. Tax debts, federal student loans, child support, and spousal support all are such debts. If your debt load is comprised of such elements, look for an alternative to bankruptcy.