A bankruptcy could provide relief in the sense that collection agencies and creditors will cease sending ceaseless demand letters and phone calls. The impact on your credit report or standing will be partially determined by the type of bankruptcy you file.
Chapter 13 bankruptcy, also known as reorganization, allows you to retain certain assets, such as a mortgaged residence or a vehicle, that you would otherwise lose. Reorganization allows you to repay a default over the course of three to five years as opposed to losing your property. In this type of bankruptcy, creditors will be notified by the court within fifteen days of the submission of the petition to cease collection efforts. This may negatively affect your credit score, but it demonstrates your sincerity and willingness to pay your debts rather than discharge them. This could assist you in obtaining new credit within a year or so.
Chapter 7 bankruptcy is a straight bankruptcy that entails the liquidation of all non-exempt assets in the state. Examples of exempt property include fundamental domestic furnishings and work-related tools. A court-appointed officer may sell or distribute some of your assets to your creditors. Only once every six years could a Chapter 7 bankruptcy be filed. This form of bankruptcy is the most damaging to a person's credit score. Although it eliminates your debts, it makes procuring new credit cards or loans for at least a year or two, if not longer, extremely unlikely. There are, however, exceptions, including federal student loans.
A bankruptcy could remain on your credit report for ten years, making it difficult to obtain credit, buy a property or life insurance, and in some cases even obtain employment. Nonetheless, it is a legal proceeding that offers individuals who cannot pay their obligations a fresh start. Chapter 13 and Chapter 7 bankruptcies must both be submitted in federal court. The current filing fee is approximately $160 in addition to additional attorney fees.
Both types of bankruptcy can eliminate unsecured debts and stop foreclosures, garnishments, repossessions, and debt collection actions. They also provide exemptions that allow individuals to retain certain assets, but the quantity of exemptions varies by state. Keep in mind that personal bankruptcy typically does not eliminate obligations for alimony, child support, fines, taxes, and certain student loans. Chapter 13 bankruptcy does not permit you to retain property if your creditor has an unpaid lien or mortgage on it unless you have an acceptable scheme or plan to catch up on your debts.
If you feel financially overwhelmed or are considering filing for bankruptcy, credit counseling is a viable alternative to consider.
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