Posted on: Feb. 16, 2017 in Debt, Credit, Credit Score

Bankruptcy is often talked about as a solution to the problem of too much debt. You may hear about individuals and businesses filing for bankruptcy, and you will sometimes hear people refer to the “chapter” or type of bankruptcy the debtor is filing. For example, “filing Chapter 11” is when a business uses Chapter 11 of Title 11 of the United States Bankruptcy Code to protect themselves from creditors while they reorganize. This is different than what individuals do.


Individuals who find themselves unable to repay the debts they have may consider filing for bankruptcy. There are two chapters that one can use to deal with personal debt. They are Chapter 7, which is Liquidation, and Chapter 13, or Individual Debt Adjustment. Whether an individual is eligible to file bankruptcy, and under which chapter, will depend on their current financial situation as well as future income. Bankruptcy can be complicated, so someone considering this option should consult a bankruptcy attorney to fully understand their rights and obligations.

Chapter 7 is a type of bankruptcy that allows the debtor to liquidate assets to pay off some of their debt. Some of the debts that cannot be paid off will be discharged or forgiven, meaning the debtor will not need to repay these debts. Because the debtor will need to liquidate (or sell off) their assets to pay back money owed, the debtor will lose some personal property. This is where a bankruptcy lawyer can help you understand which assets are exempt under federal or state laws.

Chapter 13 is slightly different. This allows the debtor to create a creditor repayment plan to use future income to pay back debts over a period of time. This method will protect the debtor’s assets because of the promise of future income. The bankruptcy will sort of like a consolidation loan and will typically include a reduction in the amount owed and the incremental payments. The debtor pays a trustee who then pays the creditors. Once the debts are paid under the plan, they are discharged.

Filing for bankruptcy will show up on your credit report for 10 years, but it can sometimes be the answer to a difficult situation. It can sometimes stop foreclosure proceedings and protect others who have co-signed loans for you. If you think bankruptcy is the answer for you, it’s smart to consult an attorney to explore this option.

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