For those with no personal experience with filing for bankruptcy, the process can be an overwhelming and mystical thing. What most do know about bankruptcy is that it is a way for people to get rid of debts that they wouldn’t be able to pay off otherwise. If you are struggling with debt and can see no possible way to repay it yourself, you may already be considering bankruptcy. Before you take that step however there are a few things you should know about bankruptcy to help you in arriving at that decision.
There’s more than one type of bankruptcy
What many don’t know is that there are several different types of bankruptcy. For individuals however, there are two basic types of bankruptcy. In a Chapter 7 bankruptcy (also called liquidation) a person’s assets are liquidated (or sold off) in order to repay as much of the debt as possible. In exchange, much, if not all of the person’s debt is discharged. The court will appoint a trustee to oversee the liquidation of property.
In a Chapter 13 bankruptcy, rather than have debts discharged, a person’s debts are reorganized. In this type of bankruptcy, the person gets to keep their property but they must also have a source of income and agree to pay a portion of that income to creditors. Once a repayment plan is submitted and approved by the court, a trustee is appointed. The trustee is responsible for collecting payments from the debtor and making sure they are distributed among the creditors.
Other considerations
Contrary to popular belief, bankruptcy doesn’t necessarily eliminate all debts. Some debts such as federal and state taxes, student loans, child support, alimony, and court fines cannot be eliminated through bankruptcy.
You won’t lose everything in bankruptcy. When filing for a Chapter 7 bankruptcy, not all your property will be liquidated. There are certain exemptions. The exemptions vary by state but generally, they allow you to keep property that you will need to recover financially after bankruptcy.
Another thing to keep in mind when filing for bankruptcy is that you can choose to reaffirm some debts. In other words, if you want to keep certain property, rather than having the debt owed on that property discharged, you can agree to continue paying off that debt after bankruptcy. Reaffirmed debts much be approved by the court.
Because everyone’s circumstances are different, a consultation with a bankruptcy attorney is recommended to discuss the particulars of your situation.
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Source:
boston.cbslocal.com/2014/01/06/personal-bankruptcy-the-basics/
