If your financial circumstances feel like a mess and you wonder whether you’ll ever be able to dig your way out, you are likely considering filing for bankruptcy. Who wouldn’t be thinking about it?
Before you take that step, though, it’s essential to understand a few things. First, what are your alternatives to bankruptcy? Second, which type of bankruptcy would best assist you?
Your alternatives to bankruptcy include debt relief, debt management, or a debt consolidation loan. You can find out more about each of these online, or I’ll cover all of them in detail in a future post.
Right now we’ll focus on the types of bankruptcy in the United States codes. There are 6 types total, but most individuals file either for Chapter 7 or Chapter 13 bankruptcy.
Under Chapter 7, most of your assets are “liquidated,” meaning they are used to pay off as much of your debt as possible. The rest of your debt is “discharged” or excused. There are certain assets that may not be included, but the specifics of these vary by state. A trustee is appointed by the courts to complete this task.
Chapter 13 is quite different from Chapter 7. Under Chapter 13, a credit repayment plan is drawn up that would be paid over a period of years. Basically, your debt is re-organized, but not forgiven.
The other types of bankruptcy are applicable to municipalities, businesses, family farms, and fishermen rather than to individuals.
The bankruptcy laws were initially enacted to assist those who genuinely need a fresh start, but this does not occur without repercussions. Clearly, it is a very good idea to consult with a bankruptcy attorney prior to making a decision to move forward.
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