If you’re behind on debt payments and don’t have much hope of catching up, you may be considering declaring bankruptcy as a solution. Before you do, it’s important to know exactly what declaring bankruptcy can (and cannot) do for your financial situation. Here’s a closer look at how both chapter 7 and chapter 13 bankruptcy work, and how they can help you rebuild your life.
In general, filing for either type of bankruptcy will enact the automatic stay, which halts creditor actions to collect their debts, including calls, letters and potential lawsuits. Most of your unsecured debt (such as credit cards) will be cleared, and you’re typically allowed to keep at least some of your assets to help you rebuild your finances. Although filing for bankruptcy stays on your credit report for 7-10 years, because you’re discharging a large portion of your debts, you can start improving your credit rating immediately.
Speaking to an experienced bankruptcy attorney can help you determine if declaring bankruptcy is the appropriate move. While both types of bankruptcy can provide relief from otherwise insurmountable unsecured debts, there are certain types of debt that are not typically eliminated by either type of filing, such as child support, alimony, most tax debts, student loans and secured debts.
Credit Card Debt
Bankruptcy is most commonly used for wiping out credit card debt. Your credit card balance is an unsecured debt (it’s secured only under special circumstances), which means that the creditor does not have a lien on any property of yours and cannot repossess anything. There are other types of unsecured debts that are also wiped out by filing bankruptcy. If a creditor has a lien, such as your car for example, then it’s a secured debt, and while bankruptcy can eliminate the debt, it cannot prevent the creditor from repossessing the property. If you file for Chapter 13 bankruptcy instead of Chapter 7, you may have to pay back a portion of your unsecured debts, but any unsecured debts unpaid once your repayment plan is complete will be discharged.
There are a lot of facets that will determine whether filing for bankruptcy is right for you, and which type of bankruptcy will serve your needs. An experienced bankruptcy attorney can discuss your options with you, and if you do file, the attorney will also ensure that your property is protected, that you’re released from all of your dischargeable debts and that creditors do not violate your rights.