Nobody likes to be in a tough financial situation. How you got there is not nearly as important as you potentially get out of it. There are many ways to get your money back under control, but if you are really struggling you may already be at a point where you are asking yourself, "how does bankruptcy work?"
Under the law of the United States, there are three main types of bankruptcy. Chapter 7, Chapter 11 and Chapter 13 (the term "Chapter" comes from each relevant section of the U. S. law code governing bankruptcy). Each one is different, so you will need to know which one is best for your situation. However, as Chapter 11 predominantly applies to business interests, and is much more complicated, we will look at the other two.
So, how does bankruptcy work when it comes to Chapter 7? You will have to pass what is known as a means test to make sure you qualify for this type of bankruptcy. If you are able to proceed a trustee will determine how to sell your assets and distribute them amongst your creditors.
You should know, however, that some property is exempt from this liquidation. This means you will get to keep some of your stuff, so you don't have to worry about losing everything. Once you are done, your debt is discharged which gives you a fresh start...sort of (more on that in a bit).
Chapter 13 is different in that it reorganizes your debt by creating an agreeable plan for repayment over the course of a few years. In most cases you will be able to keep all of your property, instead of having some of it sold off to raise money to repay creditors. There are also some debts that can be discharged under Chapter 13 bankruptcy that can't be discharged under Chapter 7.
Earlier we mentioned the idea of a fresh start, but said it was only "sort of". Once you are done you will feel a sense of freedom from your debts, but you aren't quite back to square one yet. That's because a bankruptcy will stay on your credit report for a full ten years. Chances are your current credit is as good as it could be, so this may not matter in the bigger scheme of things.
The clock starts ticking based on when you file, not when you're done paying. Therefore, it makes sense to file as soon as you can to get your debt behind you. The sooner you file, the sooner your credit will be healthy.
You now have answers to the question, "how does bankruptcy work?" It may not be the most enjoyable thing you can do, but there is a peace of mind that comes from not being contacted mercilessly by bill collectors, and not having to worry about what will happen next. Regardless of what some "experts" say, bankruptcy may be the best option for you.
Under the law of the United States, there are three main types of bankruptcy. Chapter 7, Chapter 11 and Chapter 13 (the term "Chapter" comes from each relevant section of the U. S. law code governing bankruptcy). Each one is different, so you will need to know which one is best for your situation. However, as Chapter 11 predominantly applies to business interests, and is much more complicated, we will look at the other two.
So, how does bankruptcy work when it comes to Chapter 7? You will have to pass what is known as a means test to make sure you qualify for this type of bankruptcy. If you are able to proceed a trustee will determine how to sell your assets and distribute them amongst your creditors.
You should know, however, that some property is exempt from this liquidation. This means you will get to keep some of your stuff, so you don't have to worry about losing everything. Once you are done, your debt is discharged which gives you a fresh start...sort of (more on that in a bit).
Chapter 13 is different in that it reorganizes your debt by creating an agreeable plan for repayment over the course of a few years. In most cases you will be able to keep all of your property, instead of having some of it sold off to raise money to repay creditors. There are also some debts that can be discharged under Chapter 13 bankruptcy that can't be discharged under Chapter 7.
Earlier we mentioned the idea of a fresh start, but said it was only "sort of". Once you are done you will feel a sense of freedom from your debts, but you aren't quite back to square one yet. That's because a bankruptcy will stay on your credit report for a full ten years. Chances are your current credit is as good as it could be, so this may not matter in the bigger scheme of things.
The clock starts ticking based on when you file, not when you're done paying. Therefore, it makes sense to file as soon as you can to get your debt behind you. The sooner you file, the sooner your credit will be healthy.
You now have answers to the question, "how does bankruptcy work?" It may not be the most enjoyable thing you can do, but there is a peace of mind that comes from not being contacted mercilessly by bill collectors, and not having to worry about what will happen next. Regardless of what some "experts" say, bankruptcy may be the best option for you.
SHARE
