At first, it doesn’t seem too much of a problem. Your credit card debts are growing and you did miss one debt payment, but you can handle that. As the months go by, however, the debt only gets worse. Finally, you realize you can’t pay your debts at all and your credit line has gone down the tubes. Is it time to consider bankruptcy, and just what does that mean?
As an individual, you may file for a chapter 7 bankruptcy, so named for a chapter of the federal Bankruptcy Code. It is also called liquidation bankruptcy because it allows you to sell some of your property to pay your debts. This process will take about 3-6 months, although it will stay on your credit record for about 10 years.
There are other pros and cons to bankruptcy under Chapter 7. You can keep most of the possessions you own and the wages you earn as well as any property you are able to buy after you file for bankruptcy. After filing, you will lose your credit cards, which may have caused your financial problems in the first place. You may lose possessions from a secured debt, such as a car loan. Your choice here is to decide to continue the car payments if the lender agrees, to pay for the car in a lump sum, or let the creditor take the car.
Although filing for bankruptcy may be your answer to get out of debt, it would not change everything for you. You will still owe any alimony or child support obligations. You will still owe a student loan debt or most tax debts.
For some people, the so-called Chapter 13 bankruptcy may be a better payment option. If you have a regular income, you may be able to set up a repayment plan that will pay all or most of what you owe. You may pay creditors in installments over 3-5 years. If you are considering bankruptcy as an answer to your debt problems, talk to a trusted bankruptcy attorney in your area about the best plan for you. He or she will help you determine which of the two is the best option.
Chapter 7 Bankruptcy Rules Overview, FindLaw
Chapter 7 – Bankruptcy Basics, United States Courts
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