Unfortunately, I have a closer relationship to bankruptcy than I would like to admit. No, I did not and will not file for bankruptcy, but both my parents have. As a kid, I really didn’t understand what it meant. I didn’t see a lot change with our lifestyle after the bankruptcy. But as I got older, I realized the financial hole that both my parents had got themselves into. I saw the daily struggles of taking cash advances from a high interest credit card just to make the payment on another. After witnessing this, I made a personal vow that I would never fall in that same financial trap that they did. And I knew that at all costs, that I would avoid bankruptcy and not let credit cards rule my life.
There was a time when bankruptcy was considered a stigma. Filing for bankruptcy was considered shameful, an admission that one could not manage one’s personal finances. Today, the stigma appears to have lifted. In fact, rampant credit card debt has driven many Americans to choose the bankruptcy route.
What Is Bankruptcy?
Bankruptcy was created to protect the financial health of the jobless and the infirm by eliminating high levels of debt. There are two ways to file for bankruptcy, each with its own rules. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Reform Act), made many changes in bankruptcy law.
Under a Chapter 7 bankruptcy filing, many debts are eliminated, but the filer must liquidate personal assets to pay down some of the debt. Personal property is sold by a bankruptcy trustee, who then uses the proceeds to pay creditors. Some assets are exempt if they are considered necessary to support the filer and any dependents, but state and federal laws vary widely. In general, a percentage of home equity and disability benefits are exempt, and Chapter 7 filers may be allowed to keep any money or property they obtain after filing. Chapter 7 bankruptcy can be filed once every eight years. […]
