The realization that you’re in over your head with debts and regular life expenses can be disheartening. There will likely come a point when you recognize that you need to do something to get control of those debts while still keeping up with normal bills.
Two possible options include debt relief and bankruptcy. The primary difference between these is that debt relief is a more informal option, whereas bankruptcy is a formal legal option to address debt.
What is debt relief?
Debt relief is often handled through a variety of strategies. These can include negotiating with creditors, consolidating loans or enrolling in a debt settlement program. These options are only suitable if the debt is manageable and you have a steady income.
What is bankruptcy?
Bankruptcy is a legal process that’s overseen by the bankruptcy court. When you file for bankruptcy, the court issues an automatic stay, which prevents collection attempts by creditors. This can stop wage garnishments and foreclosures, which can benefit many people.
Consumer bankruptcy is typically handled through a Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is informally known as a liquidation bankruptcy, while Chapter 13 is informally known as the wage earners’ bankruptcy.
A person who files a Chapter 7 bankruptcy must meet a means test, but they don’t have to make payments on the bankruptcy. Non-exempt assets can be liquidated at the trustee’s discretion to pay off debts.
A person who files a Chapter 13 bankruptcy will have to make structured payments for three to five years. Once all the required payments are made, the bankruptcy will be discharged, and any balances remaining won’t have to be paid.
Determining the best options for handling your debts is beneficial. This may be easier if you work with someone familiar with these matters, so you can make an informed decision.