While bankruptcy may have a bad reputation, it can actually be a helpful way to lower your debt. When you declare bankruptcy, you will still owe some of your debt. However, it can be helpful for debtors in certain situations.
The way you pay back your debt will depend on whether you declare Chapter 7 Bankruptcy or Chapter 13 bankruptcy. The two ways to declare bankruptcy depends on if you file through one of the following bankruptcy chapters.
Bankruptcy Chapter 7, which also goes by the name “liquidation bankruptcy.” If you go this route, you will need to sell some items to pay a portion of what you owe. Fortunately, your home, vehicle, and retirement accounts are typically safe, although this may depend on the state you live in.
The funds from the sale will go to your creditors, and the remaining is eliminated. This negative mark will stay on your credit report for 10 years.
Bankruptcy Chapter 13. With this filing type, you will not need to sell any of your belongings.
Your debt is reorganized so you can pay them over the course of three to five years. As long as you follow the repayment plan, you may not need to pay back all of your debt.
Filing Chapter 13 is slightly better for your credit score than Chapter 7, since you are paying some-to-all of your debt back.
Also, a Chapter 13 will also only stay on your credit history for 7 years. Filing for bankruptcy should be a last resort.
Several other debt consolidation options can reduce your monthly payments without hurting your credit significantly. Click to the next slide to learn more.