Declaring bankruptcy is a legal process that helps individuals and businesses eliminate or repay their debts when they can no longer afford to do so. Heres what happens when you declare bankruptcy:
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Types of bankruptcy: There are different types of bankruptcy, usually referred to by their chapter in the U.S. Bankruptcy Code. For individuals, the two main types are Chapter 7 and Chapter 13. Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 involves creating a long-term repayment plan.
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Debt elimination or repayment: Bankruptcy allows you to discharge many different types of debts, meaning you are no longer legally obligated to pay them. In some cases, a repayment plan may be created to help you gradually pay off your debts.
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Automatic stay: Once you file for bankruptcy, you benefit from an automatic stay. This notifies your creditors of your status and bars them from contacting you via email, mail, or telephone.
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Loss of property: One of the consequences of bankruptcy is the potential loss of property. Both Chapter 7 and Chapter 13 proceedings may require you to give up possessions for sale in order to repay creditors. This can include real estate, vehicles, jewelry, and other types of possessions.
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Credit score impact: Filing for bankruptcy can have a negative impact on your credit score for up to a decade. This can make it more difficult to obtain credit in the future.
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Fresh start and debt relief: Bankruptcy is designed to give individuals and businesses a fresh start by eliminating or restructuring their debts. It can provide relief from overwhelming financial burdens and help you begin rebuilding your financial life.
