People who have high debt obligations may find themselves struggling to make regular payments. As a result, the debtor may miss payments, face high interest and late fees and be hounded by debt collectors.
All of these issues could go away after filing for bankruptcy. Two popular bankruptcy options are Chapter 7 and 13. Here is what you should know:
Straight bankruptcy
Many people’s first bankruptcy option is Chapter 7. Debts are quickly resolved through Chapter 7 bankruptcy within a few months after a successful filing. Chapter 7 bankruptcy is preferred by people who have no other way to resolve their debts.
Chapter 7 bankruptcy is also called “straight” bankruptcy or “liquidation” bankruptcy. That is because, for some filers, assets may need to be liquidated to satisfy creditors. Only non-exempt assets are liquidated, such as an art collection, vintage car or vacation house. However, liquidation is very rarely necessary.
Filers will see their credit score drop after filing for Chapter 7 bankruptcy. This is so filers do not take on more loans, credit card debt or other financial obligations too soon, which may cause them to file for bankruptcy again.
Wage earners bankruptcy
Chapter 13 bankruptcy is also referred to as “wage earners” bankruptcy because many filers earn enough to pay for some of their debts but not all. The intent of Chapter 13 bankruptcy is to make it easier for the filer to pay their financial obligations by restructuring their debts. After several years of paying off their debts through a repayment plan, the filer’s remaining debts are resolved.
Like Chapter 7 bankruptcy, filers will see their credit score drop after filing for Chapter 13 bankruptcy. For both forms of bankruptcy, this is to protect the filer. The filer can build their credit score back up over time and careful financial consideration. Legal guidance is available for people who wish to learn about their debt relief options.