Lots of circumstances will come up in life that you simply cannot predict or control. It needs to be taken seriously since it is a grave situation. When people hit rock bottom financially and have no choice but to file for bankruptcy, they are very hesitant to admit it. Bankruptcy can come about as a result of overwhelming credit card debt, medical expenses, unemployment, or a personal factor such as divorce. Before you file for bankruptcy, you need to research what types of bankruptcy exist and what they entail.
Two kinds of bankruptcy can be applied to your financial circumstance. They are chapter 13 and chapter 7. You can cover debt you have accrued by filing for chapter 7 bankruptcy, in which case you liquidate all your assets and then use that money to pay back what you owe. The money from that liquidation clears your debt, and the sale of your possessions is supervised by the court. You may be able to keep your car or house under certain exceptions. If your home equity is large, it will not be exempt from the list of items you must sell if you file under chapter 7 bankruptcy.
You’re allowed to keep items that are not exempt from the lists of things you must sell under chapter 7 if you file for chapter 13 instead. In order to file for chapter 13, you have to make a plan to pay back the money you owe creditors. A 3 to 5 year monthly payment plan can be created. As long as you abide by the guidelines of your repayment plan and do not miss a payment, you’ll be able to keep your belongings and will not be further penalized.
It’s also to keep in mind when choosing which type of bankruptcy to file that a chapter 7 can stay on your credit report for 10 years, while a chapter 13 stays on it for 7. They both will have the same negative effect on your credit report as any other outstanding debt. Credit reports are used to determine whether or not you might be financially stable, and is used as reference when you might apply for services in the future.
The best thing to do when you’re facing bankruptcy is to educate yourself on the rules on this action by speaking with an attorney. You need to know how laws will affect your situation; there are many technicalities in bankruptcy law, and they differ by state. Even though it may be discouraging to have to file bankruptcy, your financial situation can be resolved while you also learn an important lesson about how to better manage your money.