Having financial difficulties is often emotionally draining. When you have more debt than you think you can reasonably handle, you should look into the possibility of filing for bankruptcy. This enables you to take legal action that will help you to get your money situation back on track.
You must consider the different types of bankruptcies that are possible for consumers. There are two primary chapters that individuals use – 7 and 13. These are two distinctly different options, so you have to find out which one meets your needs.
What is Chapter 7 bankruptcy?
A Chapter 7 is known as the liquidation bankruptcy. You must be able to pass the means test in order to file. Once you file, any non-exempt assets you have are liquidated. The bankruptcy trustee then uses the proceeds from that to pay your creditors. Any balances that remain after the liquidation proceeds are paid are wiped out.
What is Chapter 13 bankruptcy?
A Chapter 13 is known as the wage earner’s bankruptcy because you enter into a payment plan based on your income and what you can pay after your necessary expenses are covered. You make those payments as ordered for three to five years. The bankruptcy trustee disburses that money to your creditors. Once you make all the payments as ordered, any remaining balance is discharged.
What else should you know?
You do have some responsibilities when you file for bankruptcy. One of the primary ones is that all your debts must be included in the filing. You can’t pick and choose which to include, and there isn’t a way for you to show preference to any of them. As part of the filing process, you will have to undergo credit counseling, and you will also have a course to take before the case is discharged.
As part of the bankruptcy process, the court issues an automatic stay. This prevents your creditors from being able to contact you to try to collect the debts. Many filers appreciate this benefit because they no longer have to worry about answering the phone or checking the mail.
If you are considering bankruptcy, make sure that you think carefully about what your future entails. Often, this is an option that enables you to enjoy a fresh financial start and the ability to rebuild your future in the manner you want. Remember, it is better to get the situation taken care of sooner rather than later.