by Alan Lester van der Reinje

No matter how much we prepare for disasters it never seems to be quite enough. Most people live from paycheck to paycheck and only make the minimum payments on their credit cards or loans. When disaster strikes, such as unforeseen unemployment, many find themselves accumulating debt they cannot pay off. The option of choosing a bankruptcy chapter becomes a pressing decision and one that can change lives.

There is a distinctive difference in bankruptcy chapter 7, 11, and 13. Bankruptcy laws have also changed within recent years so it is especially important to know which changes in law are the most applicable to the given situation. A bankruptcy chapter, regardless of which one, is under the regulation of The United States Bankruptcy Courts and is governed by federal laws determining the rules and guidelines for each bankruptcy chapter.

Chapter 7 bankruptcy is where the individual is unable to pay anything towards his or her creditors. The judge and attorney will compile a list of all debts owed and look at whether or not the individual will be able to pay them back the money that is owed. If the person is not fiscally able to repay the debts then the assets not covered under exemption will be sold or returned and any extra monies paid to the creditors.

Chapter 11 bankruptcy and chapter 13 bankruptcy are where the debtor and his or her attorney makes arrangements through the court system to pay back the debts in monthly installments that will not overburden the individual. There are some assets, such as retirement, that cannot be touched by creditors so this provides some measure of relief for those nearing retirement age who do not want their 401k or retirement saving plans wiped out.

Bankruptcy chapter laws also prohibit certain types of behavior from creditors and collection agencies. These vary slightly from state to state but are generally a list of rules and regulations that prevent collectors from harassing individuals. One provision in bankruptcy chapter laws prevents creditors, after bankruptcy proceedings have been initiated, to contact the individual again directly regarding the debt.

Other bankruptcy chapter laws might cover a debt collector making harassing or threatening statements to an individual, his or her friends and family. There are also laws protecting a person’s place of work from receiving phone calls if it jeopardizes their job.

All of the bankruptcy chapters leave a mark on credit reports. It is one decision that definitely should not be taken lightly. Jobs, cars, bank accounts and even insurance premiums are all affected by bankruptcy. It will not be a permanent mark and there is a chance for a new life if valuable lessons are learned. Overspending must be curtailed and responsibility taken for bills, otherwise the vicious cycle can begin again.