Life is full of ups and downs. Many times, challenging financial times can take people by surprise. This certainly happened as a result of the recent recession that affected people all over the country, including California consumers. Many people found themselves facing overwhelming debt but were afraid to file for personal bankruptcy, even when it would have been the best financial decision for them to make.
Some individuals facing significant financial difficulties feel guilty because they believe they are not staying true to their word by not being able to pay their debts. However, the reality is that bankruptcy is a crucial part of a modern economy. Ultimately, the ability for people to start over with a clean financial slate is beneficial and vital for economic recovery throughout the United States.
Bankruptcy is a legal process designed for use by individuals, business entities and governments who are unable to repay their debts. Depending upon the petition filed, some debts may be discharged while others could be reorganized into more manageable payments over a specified period of time. The most commonly chosen alternatives for a personal bankruptcy are Chapter 7 liquidation or Chapter 13 debt reorganization.
What type of personal bankruptcy one decides to file will depend upon his or her particular financial circumstances. The types of assets a person in California owns may affect which type of bankruptcy is more advantageous. For example, a Chapter 7 filing has the ability to discharge most, if not all, outstanding debt. However, secured loans and debts such as many taxes, student loans, all child support and alimony are examples of non-dischargeable debts. Under Chapter 13, though, a plan for repayment of debts over a period of up to five years may be submitted to the Bankruptcy Court for approval.
Source: Santa Barbara Independent, “Understanding Bankruptcy: Part 1 of 7,” Harley Hahn, April 8, 2013