Sometimes, life throws a curve ball. The mortgage is late, the car payment has not been made, and the credit card companies call non-stop. It seems like there is no way out of a dark tunnel of debt. It can be scary and overwhelming for anyone. Being in a large amount of debt can feel like being in a prison. When it seems like there is nothing that can help the feeling of inadequacy, there is an option to help the situation; bankruptcy.
There are some common misconceptions about bankruptcy. Often, people believe that if they file for bankruptcy, they will lose all of their possessions. They believe that a repo man will show up at their front door demanding they hand over their house and car keys and provide him their bank account information. This is not always the case. Bankruptcy can be a lifesaver for many people. It is a viable option once other avenues of getting out of debt have failed. However, there are ramifications, and someone who is planning to file needs to understand the penalties that are involved.
There are several types of bankruptcy, but the most commonly used by individuals and families are chapter 7 and chapter 13. Chapter 11 bankruptcy is used for corporations that are in severe debt and is not typically an option for personal debtors. The type of bankruptcy will depend on the amount of debt one and their ability or inability to repay the debt. It is important to remember that certain types of debt cannot be forgiven. Typically child support, federal student loans, and tax abatements are not going to be discharged with bankruptcy.
Chapter 13 bankruptcy is like a consolidation plan. With a Chapter 13, the debtor with a steady income works with their attorney and trustee to develop a plan to pay back as much debt as possible. Chapter 13 bankruptcy is usually a three to five year process. There are advantages to filing for chapter 13 over chapter 7. Chapter 13 allows the possibility of stopping housing foreclosures, as long as the debtor continues to make the payments.
Filing for bankruptcy can be a drastic step, but bankruptcy can save the life of someone with a great amount of debt.