Chapter 7 bankruptcy, which entails the liquidation of assets, is one of the most prevalent varieties. This means that you must sell the majority of your non-exempt assets and use the proceeds to repay your creditors. The advantage of this strategy is that you can eliminate the majority of your debts, even if the proceeds from selling your assets do not fully cover them. Thus, you will only be required to pay a portion of your delinquent debts, or even none if you have few assets to liquidate. Despite the requirement to sell the majority of your possessions, you are often permitted to keep your home, though you may have to sell it if it has significant equity. You may also retain one vehicle if you can demonstrate that you need it for work. Otherwise, the majority of other items are sold to settle credit card debt, medical bills, and other unsecured obligations.
Chapter 13 bankruptcy is another option that can help eradicate financial difficulties. Unlike chapter 7, you will typically be able to negotiate a reduced amount with the majority of your creditors. You will be required to develop a payment plan that is acceptable to both your creditors and the court, allowing you to repay your debts over a period of three to five years. Once the payment plan's duration expires, you will be considered debt-free, putting an end to your financial issues. This chapter allows you to retain many of your assets, but you must sell any items deemed unnecessary or excessive by the court.
Note that bankruptcy cannot solve all financial issues because some debts must be paid. You cannot avoid paying child support or alimony, for instance. Student loans and back taxes owed from less than three years ago must also be paid. Moreover, you cannot expect to retain a secured asset without payment. This means that if you stop paying your mortgage or car payment, you cannot expect to retain these assets. Therefore, you must maintain current payments on your residence, vehicle, electronics, and any other tangible items that can be reclaimed by your creditor. If not, you will lose them.
If the majority of your financial issues stem from unsecured debts such as credit card bills, medical expenses, or delinquent personal loans, you can consider filing for bankruptcy. This is not, however, a means to avoid paying child support, student loans, or back taxes. Consult a lawyer if you are unsure whether to apply for bankruptcy to resolve your financial issues.
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