What is bankruptcy?
If you are a resident of the United States who is in need of a financial fresh start, and you have tried everything possible to get back on your feet financially, it may be time to consider bankruptcy.
Bankruptcy is a way for people or businesses who have more debts than they can handle to either work out a plan to repay the money they owe over time, or to eliminate their debts entirely.
Different chapters of the US Bankruptcy Code provide different kinds of bankruptcy (including bankruptcy for businesses). The two main types of bankruptcy for individuals are Chapter 7 and Chapter 13 bankruptcy. Therefore, if you are considering personal bankruptcy, you will probably have to choose between Chapter 7 and Chapter 13.
Chapter 7 bankruptcy, also known as “liquidation bankruptcy”, is available for individuals and/or corporations. In a Chapter 7 bankruptcy, most or all of debtor’s unsecured debts are wiped out and, at the same time, in most cases, the debtor will be able to keep their property, rather than losing everything they own.
Chapter 13 Bankruptcy, also known as “wage earner repayment plan”, is designed for individuals who want to pay back their debts but need an extended period of time to do so. In this type of bankruptcy, debtors will make payments to the people they owe biweekly or monthly. The amount for payback is based on how much they can afford after necessary living expenses are deducted from their income.
Effects of bankruptcy on credit rating
Chapter 13 bankruptcy makes it hard to get credit again. However, after a Chapter 7 bankruptcy, it will be even harder to rebuild your credit; therefore, from the perspective of the effects of a bankruptcy on credit, you should consider Chapter 13 first, while Chapter 7 should be your last resort.
Cost of filing for bankruptcy
The cost of filing for bankruptcy will vary depending on which chapter you choose. Also, fees are subject to change; however, you can expect that filing will cost approximately $300. In addition, you will need to consider the cost of hiring a bankruptcy attorney.
A bankruptcy attorney can help you determine which bankruptcy chapter would best suit your personal needs.