Bankruptcy is not pleasant to go through, but sometimes it’s necessary, especially if a person doesn’t see any way to overcome their financial situation. Bankruptcy helps people to obtain financial freedom again once they have lost it, but it is not without consequences. The bankruptcy rules are simple and standard for people to follow, if they are planning on filing bankruptcy.
Common types of bankruptcy
Chapter 7 bankruptcy
There is more than one type of bankruptcy that a person can file, but the most common type is a chapter 7 bankruptcy. A chapter 7 bankruptcy is referred to as “liquidation,” or a “straight bankruptcy.” With a chapter 7 bankruptcy, most of the debtor’s assets are sold, so the creditors can receive their payments, and then the debtor becomes free of debt. Some of the debtor property is exempt in a chapter 7 bankruptcy filing such as a home, professional tools, un-matured life insurance policy, awarded funds from a law suit, and social security, V.A. benefits and unemployment benefits. Chapter 11 bankruptcy
A chapter 11 bankruptcy filing is usually filed by businesses, to help them stay open by restructuring their debt and helping them get their finances in order. A chapter 11 bankruptcy does not require a business to liquidate and sell their assets, and they are allowed to keep many of their assets. This type of bankruptcy is designed to help businesses become profitable again, by helping them create a repayment and reorganisation plan, which must be approved by the creditors.
Chapter 13 bankruptcy
Chapter 13 bankruptcy is filed by individuals who have steady incomes, but they have too much debt. A person who files for bankruptcy 13 is able to repay their debt without any major issues. However, they will need new terms and conditions such as no interest rate or a lower interest rate. The bankruptcy court will help to establish a new repayment plan that the debtor and creditor both agree to.
Consequences of bankruptcy
Purchasing a home
After filing for bankruptcy, purchasing a home will be difficult, but not impossible. When trying to obtain a home loan, a bankruptcy filer will get higher interest rates, and will have to provide far more documentation for the approval process. Credit challenges
Bankruptcy information can stay on a person’s credit report for at least 10 years after it’s been filed or discharged, which makes it hard for a person to obtain new credit. Credit card offers will also be rarely seen coming in the mail, and when they do come, they may have a higher interest rate.