Many things can lead to financial stress. In general, a job loss, credit card debt and medical debt are all common reasons that many find themselves unable to pay all of their bills on time. And while there are a number of debt relief solutions often available, many end up choosing to file for either a Chapter 7 or Chapter 13 bankruptcy as a way to take control of their finances.
The most common type of personal bankruptcy is a Chapter 7. This is when a person’s assets are liquidated — or sold off — in order to pay back creditors. However, it should be noted that with this type of bankruptcy, a person is still able to hold on to their home.
The other type of personal bankruptcy is a Chapter 13, which is typically one filed by people who are still employed, but are struggling to keep up with mortgage, car and credit card payments. With this type of bankruptcy, a repayment plan is created that allows a person over time to pay back debts that are owed to creditors.
With either type of bankruptcy, it’s also important to remember that it is still possible to rebuild credit after the filing. For example, a Chapter 7 stays on a person’s credit report for 10 years, and a Chapter 13 stays on a credit report for seven years. However, when applying for a loan, most lenders are going to look at a solid payment history over the past few years, and not necessarily that you filed for a bankruptcy years prior. Additionally, a person who once filed for bankruptcy can also always explain the situation to a lender and tell them about the steps that were taken to recover from a financial downfall.
In the end, after weighing the pros and cons of filing for bankruptcy, if a Chapter 7 or a Chapter 13 seems like the only logical thing to do, it is advisable to contact an attorney — especially if there are any kinds of complexities — to learn about which option you qualify for, and to make sure that all of your paperwork is correctly filed.
Source: stltoday.com, “Personal bankruptcy offers a couple of options,” Andrew Leckey, Oct. 23, 2011