Get a fresh start with bankruptcy
Bankruptcy is a process where a consumer or a business entity states that they are unable to pay back their debts and obligations. With bankruptcy, you can get a clean slate and the fresh start you need. The judge and your court-appointed trustee will evaluate your assets and liabilities to see if you are truly unable to repay them with your current financial resources.
types of bankruptcy
There are two forms of bankruptcy available to consumers. The most common types of bankruptcy you may hear about include Chapter 7 and Chapter 13. The other chapters of bankruptcy are for businesses and corporations.
Chapter 7 bankruptcy
Under Chapter 7 bankruptcy, debts such as credit cards, past-due bills, and personal loans are completely forgiven. Once the debts have been forgiven, your court will appoint a trustee who will oversee your personal case and will sell certain assets. Once the assets are sold, the funds are then distributed to your creditors and lenders in order of priority.
There are certain exemptions on what a trustee can sell. For instance, clothing and other private possessions are exempt from bankruptcy. A benefit of filing for Chapter 7 bankruptcy is that your bank must stop the foreclosure process immediately and all creditors can no longer contact you about repaying your debts.
It's important to know that certain debts cannot be removed in Chapter 7. These debts include any federal student loans, past-due child support, income tax, and alimony.
Chapter 13 bankruptcy
Chapter 13 bankruptcy doesn't wipe out all your debts but simply helps to organize them. 30% of all consumer-based bankruptcies are in the form of Chapter 13. Essentially, a court-appointed trustee will collect payments from you for a 36-60 month period to repay creditors that you owe.
It will involve you repaying some debt in exchange for having the debts removed from your credit report. You will not be required to sell any personal property in Chapter 13. The bank or lender must also stop the foreclosure process as well once you begin to file for Chapter 13.
Chapter 13 is ideal for those who have a high income and do not want to sell their property. There are limitations on the level of debt that qualifies you for Chapter 13, so speak to a bankruptcy attorney in your state first.