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Bankruptcy can leave scars
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January 16, 1998: 9:22 a.m. ET
Declaring Chapter 7 protects you from creditors, but could hurt you for life
From Correspondent Steve Young
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NEW YORK (CNNfn) - You can't rid yourself of child support obligations, certain back taxes or most student loans. You can, however, erase many other kinds of debt and immediately silence your creditors by declaring bankruptcy.
"It's a relatively simple process. Other than seeing an attorney and having the petition drafted and attending a 341 hearing, more often than not, that is the entire process for the client," said bankruptcy attorney Gary Wachtel.
But the consequences can be painful.
Nationwide, 70 percent of bankruptcy filers choose Chapter 7. It forgives almost all debt, but can mean losing your home, car and other assets. It often takes three to six months.
Others opt for Chapter 13, which allows you to repay some or all of your debts over three to five years and to keep all assets. To qualify, you need a steady income and cannot owe more than a few thousand dollars.
Chapter 7 makes most sense for those who owe a large number of debts, have few or no assets, and don't have high incomes, according to Karen Gross of the New York Law School.
Chapter 13 is better for those who have lots of assets, own a home, and have an income from which to repay creditors in the future, said Gross.
Both types scar your credit record for up to 10 years.
"There may be credit available to them. However, it would be at a very, very high prohibitive cost," said David Sandor, vice president of Visa USA.
Even declaring bankruptcy costs money -- a filing fee of about $170. Using an attorney can cost another $250 to $1,000.
Before resorting to bankruptcy, advisers recommend trying to work out a repayment plan with your creditors.
Bankruptcy can haunt you for the rest of your life, possibly affecting your ability to get a job, start a business or qualify for a mortgage.
"My experience with debtors is that even if you get your life back on track, the experience of bankruptcy and the sense of failure stays with you," said Gross.
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