When things get really tough, sometimes filing for bankruptcy can be the best option to get your finances under control. While there are many misconceptions about bankruptcy, it is an important tool that most people who experience financial difficulty would benefit from knowing more about.
What is bankruptcy?
In a nutshell, bankruptcy is a legal process that can help people who are unable to pay their debts get a fresh start. Bankruptcy allows individuals and businesses to discharge some or all of their debts, which means they no longer have to worry about paying them back. If you want to file for bankruptcy, you’ll have to choose between Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
This type of bankruptcy is often called “liquidation” because the debtor’s assets are typically liquidated to pay off their debts. This process is overseen by a bankruptcy trustee, who sells the debtor’s assets to repay as many of your debts as possible. The rest of the debts are automatically discharged, meaning that they no longer have to worry about them.
Chapter 13 Bankruptcy
This type of bankruptcy is often called a “reorganization” because it allows the debtor to keep their assets while they repay their debts over time. Essentially, you and the court agree on a time period, usually 3-5 years, in which you’ll repay part or all of your debts to the court. Once you repay the agreed amount, any remaining debt is automatically discharged.
Is filing for bankruptcy a good idea?
In some cases, bankruptcy can be the best way to get out of debt and start fresh. However, in other cases, it may not be the right choice and could even make your financial situation worse. It’s typically a bad idea to file for bankruptcy if you can still afford to make payments on your debts.
Bankruptcy can be a complicated process and it’s important to make sure you understand what filing for bankruptcy will mean for your situation before making the decision to file. If you decide that bankruptcy is the right choice for you, make sure to familiarize yourself with the steps you’ll need to take.