How Can Bankruptcy Solve Debt Problems?

Bankruptcy is often perceived as the last resort to debt problems. In most cases, this is true. There are usually other things that one can do to alleviate his/her situation without resorting to bankruptcy. However, there are also some cases when this is the only answer. If you want to know more about bankruptcy and how this process works, read on to the useful information below.

What is Bankruptcy?

Bankruptcy refers to the legal process of declaring one’s inability to pay outstanding debts. People who file for this typically receive a discharge, which is a court order that directs for the removal of certain debts. The concept may sound too good to be true. And it is because it comes with some major drawbacks, one of which is severe damage to your credit rating, which may make it difficult for you to borrow money in the future.

Bankruptcy Options

This legal process comes in two types: Chapter 7 and Chapter 13. Both are to be filed in a federal bankruptcy court. Chapter 7, also known as the straight bankruptcy, involves liquidation of all assets including homes, vehicles, work related tools, household furniture and so on. These properties will be sold and the payments will be given to your creditors. Chapter 13, on the other hand, does not involve liquidation of your assets but your debts will also not be eradicated. Instead, you will be required to undergo a 3- to 5-year repayment plan of your outstanding debts. Chapter 7 can affect your credit rating for 10 years while it is only 7 to 8 years for Chapter 13.

What Bankruptcy Can Do for You

Bankruptcy can solve your debt problems in two different ways. In Chapter 7, it will completely eradicate your debts and wipe your slate clean. In Chapter 13, you will be able to manage your debt more easily in the debt repayment plan ordered by the court. Apart from this, bankruptcy can also stop repossessions, foreclosures, and debt collection activities.

Getting Legal Help

Bankruptcy is not a simple process. You will fare better if you get legal help from a competent and reliable bankruptcy attorney. Your lawyer will help you determine which option will work best for you. He/she will also walk you through the entire process for you to be guided accordingly.

Bankruptcy is one way of coping with debt problems. But before you consider this option, look at other alternatives first such as debt consolidation, debt management, and debt settlement, among many others.