People have problems managing their money for a variety of reasons. Some were never taught how to take care of their own finances. Others were doing well until a tragedy struck and they were not able to recover financially fast enough to keep from getting deep in debt. Although credit card companies and personal loan providers may lead consumers to believe that the only way to solve the problem is to pay the bills, there is another option available for people who just don’t have the money to pay their debts.
Chapter 7 Bankruptcy
This type of program is also known as a Fresh start bankruptcy because it can clear away all unsecured debts. There are restrictions and if the court determines a person has accumulated a lot of bills with no intention of ever paying them, the petition could be denied. However, for those who have thousands of dollars in credit card debt, are being charged late fees every month and have limited income to repay the debts, a fresh start may be the answer.
There are certain people who won’t benefit from Chapter 7 bankruptcy. For example, people who went on shopping sprees knowing they couldn’t pay the bills later might not be able to have the debts wiped clean. Also, homeowners who want to continue to live in their homes may not benefit from Chapter 7 bankruptcy. In this type of program, the trustee appointed by the court sells all unsecured assets. Secured assets, such as real estate with a mortgage, typically goes back to the lien holder. People who don’t pass the means test will not be able to get their debts discharged through Chapter 7.
Chapter 13 Bankruptcy
For those people who have more debt than they can handle but who won’t qualify for Chapter 7, Chapter 13 bankruptcy could be an option. This type of bankruptcy involves setting up a long-term payment plan. Under the plan, the debts are paid out of an affordable monthly amount the filer pays to the court.
Despite the advantages of bankruptcy, there are some disadvantages and anyone considering filing for debt relief should consult an attorney to learn about all of their options.