Bankruptcy can often help people get a fresh start financially. They are facing significant debt and financial issues, along with the stress that it creates. By filing for bankruptcy, they proactively address this debt, eliminate it and get to start over.
The type of bankruptcy that a person chooses to file for helps determine how this happens. The main options are Chapter 7 and Chapter 13 bankruptcy, and they operate differently.
1. Liquidation bankruptcy
Chapter 7, for instance, is known as liquidation bankruptcy because a person has to sell off their nonexempt assets. There are many exemptions for things like a person’s home or necessary equipment for their career, but they have to sell any additional assets that they own. The money from this liquidation is then used to pay back creditors. If further debt remains, it is waived.
2. A repayment plan
An alternative option is to use Chapter 13 bankruptcy. This takes all of a person’s debt and consolidates it into a repayment plan.
Chapter 13 is often best when someone is overwhelmed by multiple forms of debt that are all due at once, but given a reasonable timeframe, they still have an income and believe they could pay it back. The repayment plan helps them address their debt over three to five years and still gives them a fresh start.
Which option is right for you?
Everyone’s situation is unique. Which type of bankruptcy will work best for you depends on your assets, your income, the type of debt you are facing and other such factors. It can help to work with an experienced bankruptcy attorney as you consider your options.
