Filing for bankruptcy is an extremely difficult decision to make, but you’ve exhausted your other options. It’s time to act. You may be about to lose the house, forfeit the car or may simply be fed up with the calls from collections. If you are unable to pay off your debt in the time you’ve been given, bankruptcy is a legal way to start fresh financially. However, the details all depend on your unique circumstances. Not all debts are discharged when you file for bankruptcy and the level of relief you will receive financially depends on what chapter of bankruptcy you file. Which chapter is right for you?
The two most common bankruptcy options
The first type of bankruptcy to consider is Chapter 7, which is also known as “liquidation.” Under Chapter 7, you file a petition asking the court to discharge your debts. With this type of bankruptcy, you are required to forfeit all unexempt property so that the property can be sold to pay your creditors. This is all handled by a trustee, who receives part of the money as a commission. The amount exempt from the sale will be returned to you. You are eligible to file for Chapter 7 bankruptcy once every six years. Note that some debts cannot be discharged under Chapter 7, including alimony, child support, certain taxes, student loans and any fraudulent debts. Chapter 7 is a good choice for unsecured debts, like credit card bills. It will eliminate that debt type and give you an opportunity to rebuild.
The second type of bankruptcy to consider is Chapter 13, which is also known as reorganization. Under Chapter 13, you are required to submit a three- to five-year plan of how you will pay off some of your past-due and current debt. One of the best things about Chapter 13 is that you can keep your property while filing as opposed to selling collateral assets like a house or car. Chapter 13 is a good choice if you are facing home foreclosure or have the capacity to pay off creditors if given more time. However, the caveat is that you will need to have enough liquid income to stay current on debts while filing Chapter 13.
There are consequences to filing bankruptcy, of course. You should do your due diligence before making this choice. But know that you have options. You can recover from bankruptcy and so can your credit. If you need to pursue this legal avenue, file sooner rather than later. Stop the accumulation of debt so that you can focus on a better financial future.