When a person declares bankruptcy, the court either discharges their debts or reorganizes their debts in a more favorable manner. This releases them from any further financial responsibility for their debts. But filing for bankruptcy can hurt their credit score and their financial future in the long run. Depending on the type of bankruptcy filed, goods may also have to be sold to pay back debts.
A person who declares bankruptcy is basically pleading with the court to assist them in paying off their debts. In the United States, there are two main types of bankruptcy: Chapter 7 and Chapter 13.
- Chapter 7 bankruptcy is a disposal bankruptcy, which means that your assets are sold to pay off your debts. You can keep certain things, like your car, furniture, and personal items, even if you file for bankruptcy. But any assets that are not protected, like cash, real estate, and stocks, must be given to your bankruptcy manager, who is chosen by the court.
- Chapter 13 bankruptcy is a reform bankruptcy, which means that you make a plan to pay back your creditors over a period of three to five years. You can keep your property, but you have to pay back your creditors every month.
There are a variety of outcomes that might result from filing for bankruptcy.
- Your debts have been paid off. This means that the law no longer requires you to pay back your debts. But some debts can’t be wiped out by filing for bankruptcy. These include child support, alimony, and school loans.
- It will hurt your credit score. If you file for bankruptcy, it will stay on your credit report for seven to ten years, making it harder for you to get loans or credit cards in the future.
- You might lose some of the things you own. If you file for Chapter 7 bankruptcy, your non-exempt assets may be sold to pay off your debts.
- You will have to meet some conditions. To file for bankruptcy, you need to have a certain amount of debt and salary, among other things.
Declaring bankruptcy is a big choice that shouldn’t be made on the spur of the moment. But it can be a good choice for people who have a lot of debt and are having trouble paying it off. If you are thinking about filing for bankruptcy, it is important to talk to a lawyer about your choices.
Here are some more things to think about when it comes to bankruptcy:
If you file for bankruptcy, it doesn’t mean that your partner will be bankrupt too. But if you file for Chapter 7 bankruptcy, it could hurt their credit score.
More than one time, you can file for bankruptcy. But you have to wait before you can file again, and you might not be able to get rid of the same bill twice.
People who are having trouble with debt can get help from the government. These courses might help with debt advice, loan reduction, or loan cancellation.
If you are thinking about filing for bankruptcy, you should carefully think about the pros and cons. Some people can get help from bankruptcy, but it’s not the best choice for everyone.