Bankruptcy is not just for the financially irresponsible. Sometimes life hands a person a major event, like a health crisis, job loss or divorce, that cripples their finances. If you are contemplating bankruptcy as a debt solution, read through these bankruptcy FAQ’s to learn if it’s the right choice for you.
What is Bankruptcy?
Bankruptcy is a debt solution handled in a federal court in which an insolvent debtor’s assets are liquidated and the debtor is relieved of further liability. There are two types of bankruptcy: Chapter 7 and Chapter 13.
What is the difference between filing Chapter 7 and Chapter 13?
Chapter 7 is when the court appoints a Trustee who may liquidate or sell some things that you own to pay your creditors for your consumer debt. Your debts will mostly be canceled, but you can choose to pay some creditors, typically to retain a car or home.
Chapter 13 is a similar debt solution but your debt is simply reorganized into one monthly payment that continues for 36 to 60 months. The plan cannot go longer than five years and you don’t have to repay all of your consumer debt. You pay only as much as you can afford, but the minimum payment may be affected by property you want to keep. When you finish making payments, debt not paid is discharged.
Will bankruptcy eliminate all of my consumer debt?
Maybe. Filing bankruptcy does not necessarily eliminate all consumer debts, and often just restructures existing debts. You remain responsible for all future payments.
What are the consequences of bankruptcy?
A bankruptcy will stay with you for up to 10 years and you may have difficulty getting future credit. Bankruptcy is public record and will be reflected on your credit report but not permanently.
Are there alternative debt solutions to bankruptcy?
Yes. There are alternative debt solutions to bankruptcy. A debt management plan can be a valuable alternative if conducted by a credible company.
No matter the reason for filing, it’s important that consumers understand that they are not alone in bankruptcy process, and it is not a bad debt solution. It is drastic but a necessary tool in some situations. Filing for bankruptcy can often be a lengthy and complex process, which is why it’s imperative that consumers be able to rely on experienced, validated and reputable agencies that can provide the type of education necessary during this process.
Hopefully, these bankruptcy FAQ’s answered your questions. If you are struggling with debt and would like to explore your options, call American Consumer Credit Counseling at 800-769-3571 to speak to a certified counselor today.