The main benefit of using a credit card, taking on personal loans or applying for a mortgage is that you can get something now, such as furniture, a home or a vehicle and pay for it later over several installments or monthly fees. However, debt can quickly become overwhelming if you happen to miss payments, face unemployment or suffer from additional debts, like medical bills.
When people discover how much debt they have, they often look for easier ways to quickly get rid of it. But, this can be difficult when debt payment may be more than what someone is making at their job.
One way to handle overwhelming debt is by filing for bankruptcy. Bankruptcy is a process that helps discharge debt obligations. There are two popular forms of bankruptcy: Chapter 7 and Chapter 13 bankruptcy. While both serve to resolve debt obligations, they work in different ways. Here’s what you should know:
Filing for bankruptcy when there are no other options
When people have no other way to pay off their debts, they can file for Chapter 7 bankruptcy. Chapter 7 bankruptcy can discharge most debts. After a successful filing, debts may be forgiven after about two months.
Chapter 7 bankruptcy is also called “liquidation bankruptcy” because filers may have their assets liquidated to resolve their debts. Only non-exempt assets would be liquidated, such as a second home, art collection or sports car. Exempt assets such as clothing, a first home or a used car may not be liquidated. However, most filers do not have to liquidate assets.
Filing for bankruptcy when you have a disposable income
For people who have some disposable income and can pay some of their debts, then Chapter 13 bankruptcy might be a better choice. Debts are reorganized so that the filer can pay them off more easily while retaining assets. At the end of a repayment period, most remaining debts are forgiven.
Reaching out for legal help can help you as you explore your bankruptcy options.