People can fall into serious debt for a number of reasons, such as drastic decrease in household income due to job loss or illness, high medical bills, or racking up credit card bills that one can't afford to pay back. No matter why you're in debt, it can be very stressful to deal with debt collectors and bills that you don't have the money to pay. In some situations, filing for bankruptcy may be the best option, but not always. If you're considering filing for bankruptcy, continue reading to learn more about what to expect:
There are Two Main Types of Bankruptcy
Individuals typically file for either Chapter 7 or Chapter 13 bankruptcy. Your assets and income will determine whether you are eligible for Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the majority of your unsecured debts will be discharged. You may be required to sell some non-exempt property/assets, but in most cases people who file for Chapter 7 bankruptcy can keep the vast majority of their assets, such as their main residence.
Chapter 13 is a bit different than Chapter 7 bankruptcy; with this type of bankruptcy your unsecured debt is not discharged, but the court will create a payment plan to help you pay off your creditors over the span of a few years. When you file for Chapter 13 bankruptcy, you will not be required to liquidate any of the assets that you own.
Filing for Bankruptcy Will Have a Long-Term Affect on Your Credit
A bankruptcy will stay on your credit report for several years, which can make it difficult for you to obtain a credit card, mortgage loan, or an auto loan. If you are in extreme debt and you don't have the income to pay that debt back, bankruptcy is often the best solution, even if it has a negative affect of your credit. But, if you have a regular income, you may want to work with your creditors to set up a payment plan before you decide to file for bankruptcy.
Not All Debts Can Be Discharged
If you qualify for Chapter 7 bankruptcy, it is important to know that not all unsecured debt will be discharged. Things like unpaid alimony or child support, fines you owe for breaking the law, unpaid tax debt, and money you owe for causing the injury or death of another person will not be discharged. In the vast majority of cases, federal student loan debt will also not be discharged during bankruptcy unless the court grants you an exception.