Bankruptcy is one of the most well-known methods of debt relief, but it is also has a bad reputation. However, bankruptcy can actually be a helpful way to reduce your debt in certain situations. Find out below if filing bankruptcy might be the best way for you to lower your debt.
The process for declaring bankruptcy is a little more involved than other types of debt relief. When you declare bankruptcy, you must appear before a judge. During the bankruptcy process, a court trustee carefully goes through all your assets and financial history.
After your finances are examined, the court decides whether to proceed with your bankruptcy. If the court believes you can reasonably pay off your debt, typically by liquidating your assets, your bankruptcy is dismissed. If the court rules in your favor, your debt is discharged.
Bankruptcy has a significant impact on your credit score. Even if you are financially responsible and avoid taking out new debt after your bankruptcy, it stays on your credit report for 7 to 10 years, depending on the type of bankruptcy.
Even if your credit score starts to go up, you may be denied loans or new lines of credit because of your bankruptcy.
Additionally, not all debt can be discharged through bankruptcy. Tax debt and student loans are both notoriously difficult to get rid of, even with bankruptcy.
There are multiple types of bankruptcy, but in most cases, you use either Chapter 7 or 13. Chapter 7 is known as liquidation bankruptcy. With this option, your property is sold to pay off as much of your debts as possible.
Chapter 13 is reorganization bankruptcy. You do not have to sell your property, but the court puts you on a repayment plan to pay off whatever debt is not discharged.
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