The cost of housing, groceries and essentials is rising every day and sometimes, despite their best efforts, people are unable to make ends meet. They may turn to credit cards or loans to bridge the gap. Although it is no fault of their own, if they are unable to make their payments they may need to consider filing for bankruptcy.
Bankruptcy allows the borrower to resolve their financial concerns and offers them a fresh start. There are two types of bankruptcy to consider, Chapter 7 and Chapter 13. Before filing for bankruptcy, the borrower may be required to go through credit counseling.
Chapter 7 bankruptcy
A Chapter 7 bankruptcy is also called a liquidation bankruptcy. It is designed to discharge or eliminate most unsecured debts, which may include credit cards, medical bills and personal loans.
Under this type of bankruptcy, the court will appoint a trustee to sell the borrower’s assets to pay their creditors. However, there are some assets that are exempt, meaning the borrower can keep them. These may include a car, home and personal belongings.
Chapter 13 bankruptcy
A Chapter 13 bankruptcy is sometimes known as a reorganization bankruptcy. It is designed to allow the borrower to make a repayment plan to pay all or some of their debts. The process usually takes from three to five years. The amount the borrower will owe depends on their income, expenses and the amount of debt they have.
Under this type of bankruptcy, the borrower is not required to sell their assets as long as they make payments as agreed under the plan.