Even just the mention of bankruptcy makes people shudder. Yet, bankruptcy greatly benefits people.
Its biggest purpose is to relieve people of their debt if they’re struggling to pay it off, which many people can’t help since debt, like medical bills or late payments, can quickly build up. You should know, however, that bankruptcy does have a few flaws, but they generally outweigh any benefits. Here’s what you should know:
Relieving your debt with Chapter 7 and Chapter 13 bankruptcy
There are two commonly used types of bankruptcy that you should be aware of, and depending on which one you choose, there are different advantages and disadvantages.
Many people file for Chapter 7 bankruptcy, a liquidation plan. Chapter 7 bankruptcy relieves most or all of your debt by using nonexempt assets to pay off your debt, which is its main flaw. Yet, essential assets like a used vehicle, tools of trade and home are exempt, meaning they won’t be liquidated. Most people who file for Chapter 7 bankruptcy do so because they have no other way of paying off their debt.
Alternatively, people who have some disposable income, and don’t wish to liquidate assets, typically file for Chapter 13 bankruptcy. Chapter 13 bankruptcy is a refinancing plan. In other words, your debt will be broken down into payable segments while relieving the rest of the debt.
Both Chapter 7 and Chapter 13 bankruptcy will cause your credit score to drop. This can make it harder to make larger purchases or apply for loans, but you will be able to build it back up in the future.
If you’re looking to relieve your debt, then you may consider filing for bankruptcy with the help of someone experienced with the law.