The thought of bankruptcy can strike financial fear into a lot of people. It comes with a good bit of stigma, and most of us would prefer to avoid it. But the truth is: Hundreds of thousands of people in the U.S. file for bankruptcy protection every year. For many, debt relief under court protection can be the tool they need to get their financial lives back on track.
Here’s what you need to know about the different types of bankruptcies, how each works, when you should file and how much bankruptcy costs.
Type of Debts Discharged
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Bankruptcy laws give those who have more debt than they are able to repay a way to get a fresh start. Depending on the type of bankruptcy filed (Chapter 7, 11 or 13), consumers can gain court-ordered protection from creditors, discharge unsecured debts entirely or enter into an organized repayment plan.
There are different types of bankruptcy filings — Chapter 7, Chapter 11 and Chapter 13 — and pros and cons within each. At Resolve, we believe Chapter 7 is the best option if you qualify and if it fits your financial situation.
Chapter 7 Bankruptcy
Chapter 7 is one of the most common forms of bankruptcy that consumers can file, and it can be the best option if you qualify. That’s because there’s no repayment plan under Chapter 7.
It allows consumers to eliminate all their unsecured debts (and some secured), giving them a clean financial slate in as little as 90 days. Your secured debt, such as for your home or automobiles, can be affected by a Chapter 7 filing, but to what degree depends on the state where you live.
Chapter 11 Bankruptcy
Unlike Chapter 7, which allows consumers to wipe away their debts, Chapter 11 requires a repayment plan for those debts. That plan must be approved by a court, the plan must be outlined in full and creditors must sign off on it.
Chapter 13 Bankruptcy
Like Chapter 11 bankruptcy, Chapter 13 involves the creation of an organized repayment plan. Once your plan is approved, your case is turned over to a trustee, who is responsible for ensuring that you make your regularly scheduled payments, usually over a three- to five-year term. Those payments are then distributed to your creditors to pay off the debt included in your bankruptcy.
You should file for bankruptcy when you feel you’ve exhausted other options for resolving your debt and you need to start with a clean slate. This is not a decision to take lightly as it impacts your credit for seven to 10 years. However, there are times when this is truly the best step and is worth the effort to get a fresh start with your finances. At Resolve, we believe Chapter 7 is the best option where viable, and we rarely recommend Chapter 11 or Chapter 13.
Find a bankruptcy attorney — Use this search engine to find a bankruptcy attorney near you.
Bankruptcy forms — Access a variety of forms associated with stages of bankruptcy proceedings.
Assess your debt calculator — Helps you answer the question, “Do I have too much debt?”
Credit card payment calculator — Discover how long it will take to pay off your current credit card balance.
Debt consolidation calculator — Assess if debt consolidation is a viable option for you.
While the tools listed above can help you explore your options for getting out of debt, you may find it challenging to determine the best course of action for your situation. That’s where Resolve comes in.
Become a Resolve member and we’ll contact your creditors to get you the best offers for your financial situation. Our debt experts will answer your questions and guide you along the way. And our platform offers powerful budgeting tools, credit score insights and more. Join today.
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