How does Bankruptcy work?

The two most common types of Bankruptcy filings are Chapter 7 and Chapter 13. In most cases you will almost always want to reach out to a Bankruptcy attorney near you and schedule a consultation; most of them do this for free so if they want to charge you, find a new attorney. We’ve detailed how each filing works below:

Chapter 7:

  • This is the best option, if you qualify. There are limitations per state and depends on the number of people in your household and combined income.
  • If you qualify, ultimately you can discharge all of your unsecured debt and owe nothing after the process is complete (typically 90 days).
  • Keep in mind that this will remain on your credit for 10 years, however, you can still get new credit card offers a few months after discharging, qualify for a home loan two years after discharge, and apply for federal student loans after three years.
  • As you can see, this is a good option to quickly eliminate debts and still accomplish all of your life goals before the 10 year mark on your credit disappears, just keep in mind that you can’t file Chapter 7 again for 8 years.

Chapter 13

  • Is an organized repayment of debts that the courts sponsor.
  • A trustee will be responsible for your financial life for 3-5 years, take your finances to the edge and establish a payment to themselves each month, and distribute a preset amount to your creditors (sometimes the full amount owed, and often less than your total balance).
  • If you miss one of these payments, the plan is then canceled and you would have to start over from scratch with a different solution.
  • In sum, Chapter 13 is debilitating, typically over 70% of cases don’t complete the plan. This is because circumstances can drastically change over a 5 year period and emergencies can surface.
  • However, sometimes you can convert a Chapter 13 into a Chapter 7, and you may be able to file Chapter 13 sooner than the delays experienced between Chapter 7’s, but consult with a Bankruptcy attorney about your situation for more information.
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