Did you know that in 2012, over 1.3 million Americans filed for bankruptcy? Debt is an issue that an even larger number of Americans face, and between creditors calling and trying to get caught up with payments, the situation can easily become very confusing and highly stressful. Here are several basic questions and answers you should know about bankruptcy in order to determine if it is the right financial choice for you.
1. Does bankruptcy permanently ruin credit?
No, but it will impact it for a while, so keep this in mind if you are planning to try and, for example, buy a house in the near future. A Chapter 7 bankruptcy will stay on your credit file for ten years, and a Chapter 13 bankruptcy will remain there for seven.
2. What is the difference between Chapter 7, and Chapter 13 bankruptcy?
Chapter 7 bankruptcies eliminate most or all unsecured debt, while Chapter 13 is more a restructuring of debt payments. Chapter 7 bankruptcy filings, which are better for situations where people have overwhelming debt and little property or expendible income, are the most common. Chapter 13 bankruptcy information is wanted by people who wish to prevent a foreclosure or repossession of property such as homes and cars. Chapter 13 has debt structured out over a period of 3 to 5 years. For more Chapter 7 or Chapter 13 bankruptcy information, consult a local attorney.
3. Does bankruptcy erase ALL debt?
It depends on what your debts are. Child support, for example, is not a debt that gets erased by bankruptcy. Neither are student loans, recent taxes, and car payments, in most cases. Something also worth mentioning is that you should not spend recklessly before filing bankruptcy under the assumption that you will not have to pay for these things. This is considered fraud and the court is unlikely to discharge this type of debt.
There is a common myth that couples struggling with debt both need to file for bankruptcy. In reality, if one person is the primary debt holder, they can file for bankruptcy individually. Can you file for bankruptcy without an attorney? Technically yes, you can, but this is not recommended since the governing rules are technical and a mistake can land you in more trouble than before. The offical US gov court website recommends hiring an attorney since bankruptcy has long term legal and financial consequences.
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