Does bankruptcy help or hinder your path to a debt-free lifestyle? While there are certainly ups and downs to the system, bankruptcy is a legitimate way to get out of debt. Six types of bankruptcy exist in the United States. There is Chapter 7, which is liquidation bankruptcy, Chapter 9, which can be used by cities or school districts to restructure debts, Chapter 11, which is used primarily by businesses, Chapter 12, which is used by farmers and fishermen, Chapter 13, which is for a repayment plan, and Chapter 15, which is for international bankruptcy issues.
The most common kinds of bankruptcy that individuals use are Chapter 7 and 13. With Chapter 7 bankruptcy, you sell off your assets and eliminate your debts by paying them down. With Chapter 13 bankruptcy, you develop a plan, either for three or five years, and you then repay your debts over that time. At the end, any extra debts are generally discharged.
Your credit will take a hit if you decide to file for bankruptcy. For up to ten years, your credit score can be affected. That means that it could be harder to buy a home or car. Bankruptcy is only one part of the decision-making process for companies offering loans and credit cards. Therefore, it is still possible for people who have gone through bankruptcy to get credit when needed.
Under Chapter 7 bankruptcy, you could lose your home or vehicle, but there are exemptions that protect some of your assets. Making sure that you get the legal and financial guidance you need to understand which exemptions you can claim is vital.
Source: Business News Daily, "Filing for Bankruptcy: Information, Benefits & Disadvantages," Chad Brooks, accessed July 09, 2015