Bankruptcy is a federal procedure meant to help people or businesses eliminate their debts, or, at least, figure out a feasible repayment plan. There are several different types of bankruptcy, with each plan designed to help people with certain amounts of or different types of debt.
There are many different reasons why a person may have to file bankruptcy, from credit card debt to student loans to mortgage payments to medical expenses. Indeed, bankruptcies resulting from unpaid medical bills affected an estimated 2 million people in the United States during 2013.
Here are the important facts you should know about bankruptcy and its many different structures:
- Chapter 7, or liquidation bankruptcy, has the main advantage of giving a debtor a clean slate; he or she does not come out with any future obligations on his or her discharged debts. But Chapter 7 doesn’t erase mortgages or leins, so if the debtor wants to keep those items, they must continue to make those payments. Chapter 7 bankruptcy is very common. In fact, there was a total of 728,833 Chapter 7 bankruptcies filed in the United States during 2013. They typically take around six months to complete and stay on your credit report for 10 years after it is arranged.
- There was a total of 333,626 Chapter 13 bankruptcies filed in 2013. Chapter 13 involves the debtor paying their loans back over a period of three to five years from their future income. Most of the debt not paid back within that time is discharged or wiped out. Most long-term debt, like home mortgages, must be paid back through their normal payments.
- Chapter 11 bankruptcy is used by large businesses in order to organize their debt while continuing to operate. There was a total of 8,980 Chapter 11 bankruptcies filed in the U.S. during 2013. For cases like these, which often involve many great sums of money than the other two chapters, the help of a Chapter 11 bankruptcy attorney is often essential.
Although filing bankruptcy can feel like you have hit rock bottom, it is actually a great opportunity to wipe the slate clean and begin again. Whether you are working with a Chapter 11 bankruptcy attorney or a lawyer specializing in Chapter 7, these experts will guide you through the process to have your loans forgiven.