What is Bankruptcy?

If you are struggling with crippling debt and find it difficult to make your monthly payments, then you may benefit from declaring bankruptcy. Many people don’t realize the immense benefit this could have on their financial standing due to both the perceived stigma against it and simply not knowing what exactly bankruptcy is. Let’s take a closer look at the basics of declaring bankruptcy and discuss when and how it could help you if you are struggling to get by and desperately need financial relief.

Types of Bankruptcy

There are several different types of bankruptcy, and which one you file depends on your situation, including your income levels, type of debt, and whether you are filing for yourself or your business. The two most common types of bankruptcy are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is what is known as a “liquidation” type of bankruptcy. Filing for Chapter 7 immediately ceases all collection efforts against you from banks and creditors, but in exchange allows them to seize and sell off some of your assets to attempt to repay some of your outstanding debt. This is what makes many people think that they will lose their house if they declare bankruptcy, but it’s usually possible to protect things like your home and car in this process, while still wiping away some of your outstanding debt.

Chapter 13 is a “reorganization” type of bankruptcy, known as “wage earner” bankruptcy. By filing for Chapter 13, you essentially agree to work with your creditors to come up with a repayment plan and then stick to it for the course of three to five years in order to absolve yourself of your debts. This may allow you to repay any secured debt you may have without having the property securing that debt be repossessed, but it’s a little trickier to qualify to file this type of bankruptcy.

It’s important to remember that no type of bankruptcy allows you to simply skip out on your debt without paying anything: if you acquire the debt, you will have to pay it off in some form, even if you have some of it forgiven.

Consequences of Declaring Bankruptcy

Bankruptcy does not come without consequences, however. Declaring bankruptcy may give you time in which to reorganize and settle some of your debts, but it will stay with you on your credit record for up to seven years. This means that you will have a lot more trouble applying for things like lines of credit, home loans, or even apartment rentals for a while after declaring.

However, for many people, the benefits outweigh the costs. If you are struggling with debt and being harassed by bill collectors, declaring bankruptcy can put a stop to any collection actions against you, and give you time to reorganize and start paying off your debts on terms that are friendlier to you. If you stick with your payment plans work to eliminate your debts quickly, many people often see a dramatic improvement in their credit scores within just a few short years, even with the bankruptcy declaration on their record.

Before filing bankruptcy or beginning the process, you should consult with an experienced Kent County bankruptcy attorney to find out if declaring is right for you. At the Law Office of Steven J. Hart, we strive to help people get their financial independence back while keeping their possessions that matter the most. Attorney Hart and his team are dedicated to providing the highest standards of professional legal counsel in order to put the law on your side and help you through your most difficult financial times.