Bankruptcy is a valuable option for those who are drowning in debt and can't see a way out. This debt doesn't just come from being irresponsible. Many Americans deal with overwhelming debt from medical bills after an accident, low wages after a job loss or debts with high interest. This debt can also be a huge stress and affect every area of your life. In order to obtain a fresh start for your financial future, bankruptcy may be the right choice.
The most common types of bankruptcy are Chapter 7 and Chapter 13, and your individual circumstances will affect which option is right for you. Chapter 7 bankruptcy involves the liquidation of assets and is quick but doesn't deal with problems with nondischargeable debt. Chapter 13 allows for debt adjustments for those who have a steady income, allowing you to keep your possessions as long as you make adjusted payments on them over a period of time.
Know which debts are covered
Some wrongly believe that bankruptcy will forgive all debt and give you a totally fresh start. While bankruptcy can be a great way to reorganize your finances and settle your debts, there are a few things that are not included or forgiven when you file:
- Any debt incurred after you file
- Secured loans such as car payments and mortgages
- Income taxes
- Government debts such as penalties and fines
- Spousal and child support
- Student loan debt
These are just a few of the debts that are not dischargeable when filing for bankruptcy. The debts you can discharge and those you can't depend greatly on the type of bankruptcy you file.
What happens to my debt after filing?
The answer to this question greatly depends on the type of bankruptcy you file for. Chapter 7 bankruptcy only removes debt you had before you filed, but you are responsible for any debts gained while you wait for debt to be discharged. Your debts are typically removed after about four to five months.
Chapter 13 allows you to make smaller payments that you can afford on pre-existing debt but doesn't apply to debts gained during the process. This means that once your payment plan is complete, your debts are taken care of as long as they were gained before you filed for bankruptcy.
While bankruptcy can give you a fresh start for your family and your future, it can be a very confusing process, and you want to make sure you are doing it right. Consulting an attorney before making any decisions about your future is a great way to ensure you are handling it correctly.