Bankruptcy protection is a legal declaration by an individual or a company that declares they are unable to repay their debts. This is more than just simply filing a form and being forgiven of all debts though.
After a person declares bankruptcy they will need to meet with a judge to determine if they will create a repayment schedule to debtors or be forgiven of most or all debts. A business may file for bankruptcy that forgives them of all of the business’ debts but in this case, the business would have to close. Should a business choose to file for a bankruptcy in which they would create a repayment plan, the business would be able to remain open.
The different types of bankruptcy are known as chapters. These chapters refer to the Chapter in the book, U.S. Bankruptcy Code & Rules. The chapters in these books outline the different eligibility requirements and options available for each different type of bankruptcy.
Chapter 7 is the most common form of bankruptcy filed, and it’s available for individuals, married couples, or businesses. This type of bankruptcy clears all or most outstanding debts. When individuals file for Chapter 7 bankruptcy, it’s important to understand that this type of bankruptcy will not forgive federal loans, such as student loans. It’s also important to understand that while Chapter 7 is also the most common form of bankruptcy for businesses to file, it also means that the business will need to close down.
In order to be able to file for Chapter 7 bankruptcy, a person generally must be able to prove that they have insufficient income to repay their debts. All of their assets will also be liquidated in order to help pay off the outstanding amounts. A primary car or a house will not be liquidated, unless the property currently has loans attached to it that the individual cannot pay. Once bankruptcy has been filed and assets have been liquidated, the person will be forgiven of most debts and will no longer be responsible for them.
Chapter 13 bankruptcy is another type of bankruptcy people can file, although this type I is much less common. Chapter 13 bankruptcy is for individuals or married couples that have a large deal of property or a great amount of assets that don’t want to lose but yet, also can’t pay the outstanding amounts on the loans. With this type of bankruptcy, those filing would meet with a judge that would restructure a new payment plan for them. This plan would outline reasonable payments that can be made and when they are to be made. If these new payments are not made, those assets will then be at risk of being seized.
When you’re in very hard financial times and you don’t see a way out, bankruptcy can seem like a very attractive option because it does clear you of most of your debts, such as large credit card debts. And while many people refer to as being given a “clean slate,” this isn’t necessarily true. While you’ll be cleared with certain creditors, the fact that you filed for bankruptcy will stay with you for a very long time. This is because filing for bankruptcy stays on your credit report for 10 years and is one of the biggest risks lenders consider when deciding on whether to approve you for a home, car, or any other type of loan. Filing for bankruptcy could make all of these things very difficult for 10 years or more.