Here at Auto Credit Express, we freely give advice about those things that we are familiar with - the automotive industry in general and bad credit car loans in particular. One thing we will not do, however, is to give anyone legal advice. If you are looking for that, you need to consult a lawyer and if you are thinking of declaring bankruptcy, a lawyer that specializes in bankruptcy law. What I would like to do is to familiarize you with the different types of bankruptcies as well as some of the terms involved with bankruptcy proceedings.

Types of Bankruptcies

Chapter 7 – This type of bankruptcy is a liquidation bankruptcy. All unprotected assets are sold off to satisfy the claims of the creditors. When the debt involves collateral (such as a home or a car), you have three choices:

1. Redemption – you pay for the current value of the collateral in a single cash payment. The collateral is now yours free and clear.
2. Reaffirmation – You agree that you will continue this debt after the bankruptcy has been discharged (completed).
3. Surrendering - You give up all rights to the collateral and it now belongs to the creditor who can sell it to recover the debt.

Chapter 13 – This type of bankruptcy is a reorganization bankruptcy. It lasts for either 3 or 5 years, depending on what your family income is compared to the state median. The plan must allow for full payment of 1) priority claims (taxes, support) and generally for payment of the value of 2) secured claims (secured by a lien such as an automobile – although this does not include real estate). It also calls for payment on 3) unsecured claims – in that order. The amount of the monthly payment is based on a form that you fill out that is an evaluation of your living expenses and the disposable income that is left after these expenses. While you are in this type of bankruptcy you agree to:

1. Make the plan payments
2. Don’t incur significant debt without court approval
3. Keep insurance on any collateral

For both types of bankruptcies the court appoints a professional called a Trustee. Although the trustee has different duties in both types of bankruptcies, he/she is there to manage your payments and act in the interests of your creditors.

When is a bankruptcy over?

Bankruptcies are over when they are either dismissed or discharged. If a bankruptcy is dismissed, it means that you are still legally responsible for all your debts. A dismissal is usually the result of being in a Chapter 13 and not making your monthly payments. When a bankruptcy is discharged, it means that it has been completed successfully. All debts that can be discharged are no longer legally enforceable against the debtor (some debts such as student loans, child or family support and criminal restitution cannot be discharged).

How will a bankruptcy affect my credit?

A bankruptcy will stay on your credit report for 10 years following discharge. As a rule, the older the bankruptcy, the less it affects your credit rating. The completion of a bankruptcy (not a dismissal) is also a good time to begin rebuilding your credit. At Auto Credit Express, we are experts at helping get you a bad credit car loan that will put you “on the road” to credit health. Simply go to our website, Auto Credit Express, for more information. You can even fill out a loan application in the comfort of your home.