Unmanageable debt can happen any number of ways, and it happens far more often than you might think. Fortunately, the courts retain the right to discharge many kinds of debt for individuals who qualify for bankruptcy and follow the proper procedures.
If you feel completely overrun by debt, bankruptcy may be the right choice for you. However, many people discuss bankruptcy as if it is a monolith, when, in reality, there are a number of different bankruptcy plans, each with their own strengths and requirements.
When it comes to consumer debt, Chapter 13 and Chapter 7 bankruptcies both allow individuals to discharge debt, but they do so in very different ways, and maintain different guidelines.
If you're looking around at debt discharge options, a better understanding of what Chapter 7 bankruptcy does can help you decide whether it's the right fit for you.
Does Chapter 7 strip you of everything?
Unlike Chapter 13 bankruptcy, which allows a debtor to create a court-approved repayment plan, Chapter 7 allows a debtor to discharge debt by liquidating certain assets to repay their creditors some or all of what is owed.
Usually, the real question on a person's mind is, "Am I going to lose everything?" The short answer is no, probably not. While it is not possible to answer this definitively without examining the specifics of your situation, Chapter 7 allows for debtors to retain many different kinds of property depending not the nature of the property and the type of debt.
What property is exempt from liquidation?
It is always wise to consult with a bankruptcy attorney to understand how your circumstances and property may withstand Chapter 7. In broad strokes, however, you can often keep several types of property throughout a debt discharge.
One of the most common exemptions is for a person's retirement savings or pension. Bankruptcy law allows for fairly broad exemptions of retirement assets.
Furthermore, it is common for debtors to keep their home while undergoing bankruptcy. While this is not possible in every instance, there is a good chance you will not lose a home you own to bankruptcy. It is also possible to keep a number of possessions if they fall into protected categories.
Beyond potentially keeping many of your possessions, you may find that you can reclaim wages recently garnished from you.
Each bankruptcy is different, so be sure to get proper legal guidance to ensure that you follow the proper procedures and don't miss out potential exemptions as you hit the reset button on your debt and plot a path toward a fresh start.