Many people struggle with crippling debt brought on by unforeseen medical expenses, mishaps, late fees, unemployment, and interest. After building up unmanageable debt, people frequently look for fast fixes to their problems. One option for many people is to declare bankruptcy, a process that allows people to discharge some substantial debt.
The two most popular choices of bankruptcy are Chapter 7 bankruptcy and Chapter 13 bankruptcy. What you should know is this:
Understanding liquidation bankruptcy
Chapter 7 bankruptcy is often known as liquidation or “total” bankruptcy. Chapter 7 bankruptcy is frequently filed by those who are unable to pay their bills in full or who struggle with late penalties and interest. Under Chapter 7 bankruptcy, the majority of a debtor’s obligations can be dismissed within a year.
The reason Chapter 7 bankruptcy is called liquidation bankruptcy is that, in rare cases, people may have some assets liquidated to appease creditors. First homes, used vehicles and clothing are typically exempt from liquidation. However, vacation homes or art collections may be subjected to liquidation – although the vast majority of filers don’t have anything to liquidate.
Understanding debt reorganization
For those with steady incomes who are nevertheless unable to pay off their debts, Chapter 13 bankruptcy may be an alternative. Debtors who receive Chapter 13 bankruptcy approval may have their debts reorganized. Once a reorganization process is approved, the remaining balance of the debts is typically due within three to five years.
Bankruptcy is a complicated process. Debtors must be honest about their debts and ensure that all eligible debts are accounted for when declaring bankruptcy. It can help to reach out for legal help when beginning the bankruptcy process.