Bankruptcy can help people out of very dire financial situations. However, bankruptcy is not a magic wand to wave over debts, nor it is a general bandage for bad finances. There are several different types of bankruptcy, some of which are specific to certain situations. Before deciding to declare bankruptcy, do some research and find out which type is best for you. The two most common for personal bankruptcy are Chapter 7 and Chapter 13, also known as full bankruptcy and debt consolidation.
- Chapter 7. This is a bankruptcy in which all of a debtor’s assets are seized, and any extraneous property is sold by the bankruptcy court to settle the debts. After the debtor is reduced to the money and property he or she needs to live, any remaining debts are discharged by the court. This is a common recourse for a debtor who is completely unable to pay back his or her debts.
- Chapter 13. As its nickname implies, this is where the bankruptcy court consolidates all of a person’s debts. The debtor must then develop a plan in which all of his or her expendable income goes to paying off the debts over a set period of time. In this way, the debtor is allowed to keep his or her assets and pay off the majority of the debts, simply over a longer period of time than expected.
If you need to file for bankruptcy, look into both of these options and others before making your decision. It is also important to have a Louisville bankruptcy lawyer advise you along the way.