Sometimes a person’s debts are so overwhelming that the person cannot make even the minimum payments on their debts. Unexpected life events, such as loss of employment, death of a loved one, divorce, or disability frequently lead to more debt than a person can pay. In this situation, a person sinks further and further into debt even though he may be paying all he can to his creditors. Filing for bankruptcy may provide valuable benefits to individuals who are struggling to pay off debt.
Some people worry about filing bankruptcy and what it might do to their credit report or financial future. Many people find themselves considering it for the first time, and they typically have many questions regarding bankruptcy. Here we will cover a basic overview of bankruptcy and the differences between two of the most common kinds of bankruptcy that are available for most people.
When a person files for bankruptcy, she requests the Court to protect her from her creditors. Bankruptcy laws come into effect and may stop creditors from trying to collect on their debts. The bankruptcy may stop a foreclosure of someone’s home or a repossession of a car or truck. Additionally, a creditor may have to give back property that was recently repossessed. In return, the person generally tenders property and/or a payment plan to pay off as much debt as she can reasonably afford. At the conclusion of the bankruptcy, the person may receive a discharge (wipe out) of some or all of her remaining debts. For most individuals, there are two kinds of bankruptcies: Chapter 7 and Chapter 13. Both have their advantages and disadvantages.
- A Chapter 7 Bankruptcy may wipe out most or all of your unsecured debts. Some debts, like child support and student loans, may survive the bankruptcy, but having all the dischargeable debts behind you may go a long way in putting you back on your feet. A chapter 7 bankruptcy, however, does not do much to stop a foreclosure or stop a repossession on a vehicle. Secured creditors have the right to either get their money or get the property back.
- A Chapter 13 Bankruptcy may allow you to pay your important debts (secured debts like your home and vehicle as well as any priority debts like taxes and child support) and discharge most or all of those unsecured debts that you cannot afford. . This type of bankruptcy takes time, though, as it involves refinancing your important debts.
Under either chapter, much or all of your property, at least that property that is necessary for you to live a normal life, may be exempt (protected from your creditors), the debts that you cannot afford may get discharged, and you may get a fresh start.