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Understanding Bankruptcy

Usually the last resort for most consumers, bankruptcy comes with real long-term consequences.

For those in the most serious financial circumstances, where other debt reduction tools are not an option, bankruptcy may be the best debt management solution. However, before choosing bankruptcy, you need to be armed with information to make an informed choice.

Many consumers do not realize the long-term impact bankruptcy may have on their ability to obtain credit for future major purchases such as a home, car, or large appliances. In addition, bankruptcy reform laws enacted in October of 2005 have also made it even more difficult for consumers to file bankruptcy.

Bankruptcy is a complex legal matter best handled through an attorney. GFM does not handle bankruptcy cases, but we would be happy to provide some guidance on whether you might qualify or not, and refer you to a competent attorney in your area who can handle your case if necessary. Call us at 1.866.467.1259 and we will review your information with you.

Bankruptcy is a legal proceeding - there are court papers to file, appearances before bankruptcy trustees and judges, and other commitments while the case is active. At the end, you receive a discharge. Of course, the primary advantage of filing bankruptcy is that you will generally pay much less than you would under any other debt management solution. In addition, you will never have to pay any more to those creditors.

However, your credit reports will reflect the bankruptcy for many years after you file. Some creditors will absolutely not give credit if a bankruptcy is on your credit report; others will do so, but with annual fees and higher interest rates that tend to put you back into the same negative spiral.

To better understand bankruptcy, it is important that you familiarize yourself with the following industry terms:

Debtor - If you file for protection under the Bankruptcy Code, you are the debtor.
Trustee - A professional appointed by the court to liquidate your property or take payments from you under a repayment plan.
Exempt Property - Each state has laws that allow a debtor to protect some assets from creditors - such as a primary residence, auto, and some household goods.
Secured Asset - When you have pledged an asset as part of your promise to pay, the asset is considered security. If you have taken out a loan to pay for your house or auto, except in rare instances, you must eventually make the payments due in order to retain possession of those assets.
Chapter 7 Filing - This is liquidation. All of your non-exempt, unsecured property (and any secured property that you no longer wish to keep) is taken over by the trustee who disposes of it all and pays the creditors whatever money the sale brings. You are discharged of all personal liability for any shortfall.
Chapter 13 Filing - If you qualify, you propose a plan to pay a portion of your debt over a period of time. There are certain requirements of the plan, but if accepted and fully carried out, you receive a discharge at the end.
Non-Dischargeable Debt - Certain debts cannot be discharged, such as student loans, child support obligations, and taxes. You will continue to owe these bills even after your bankruptcy case is closed.

Again, in the most serious financial circumstances, when other debt reduction tools have already been exhausted or are just not an option, bankruptcy is often chosen as the last resort debt management solution.

DISCLAIMER: Deciding whether to seek protection under the Bankruptcy Act is an important decision. The information contained on this and other web pages regarding bankruptcy is provided as a service and does not constitute legal advice. Because statutes and court rulings can change in interpretation, GFM makes no claims or guarantees as to the accuracy or completeness of the information contained here or elsewhere on this web site. If you are considering bankruptcy as an alternative to eliminate or reduce your debt, you should seek the advice of competent counsel.