Most people are in dire financial circumstances by the time they begin to consider bankruptcy. The thought of filing for bankruptcy can be daunting and overwhelming because declaring bankruptcy has a long-term impact on your credit score and finances.
Recovering from bankruptcy takes a long time, but it can be done. Knowing what options are available to you is the first step toward rebuilding your financial future.
The two most common types of bankruptcy are Chapter 7 and Chapter 13. They each come with their own rules and end results:
Chapter 7 is also known as liquidation bankruptcy
In order to settle some of your debts, you may be required to sell off some of your assets. Married couples are allowed to file jointly, or one spouse may file in their name only.
- Filing for Chapter 7 bankruptcy grants you an automatic stay that stops bill collectors from calling and harassing you.
- Unsecured debt is usually canceled, meaning you do not have to repay those debts.
- Chapter 7 bankruptcy stays on your credit report for up to 10 years. After that, it is removed from your report, giving you a fresh start.
Chapter 13 is also known as the reorganization bankruptcy
The debtor is given an opportunity to keep their assets by agreeing to a three to five-year repayment plan set up by the court. The debtor must show that they have a reliable source of income available.
- A trustee is appointed to investigate your finances and coordinate repayment.
- When the end of the repayment plan is successfully reached, the remainder of any unsecured debt is charged off.
- The bankruptcy remains on your credit report for up to 10 years. Then, it is removed from the report.
If you are considering bankruptcy, contact an experienced legal guide to discuss your options.
