Unfortunately, in our society, the term, “bankruptcy” can seem like a dirty word. Historically, society in general has given the action a negative connotation – as if people have failed or that they are not living up to their commitments. However, especially in these uncertain times, it has never been more important to have financial options. Also, it is important to remember that bankruptcy was specially designed to be a fresh financial start.
By the numbers
In recent years, however, bankruptcy has become more common with more than 700,000 debtors getting their fresh financial start every year. In 2015 alone, 884,956 Americans filed personal bankruptcy with the federal bankruptcy courts.
The types of consumer bankruptcies
With the swipe of a pen, a federal judge can erase credit card bills, medical expenses, personal loans and other forms of unsecured debt. Even when bankruptcy does not entirely erase debts, they can still be reduced. For consumers, Chapter 7 and Chapter 13 bankruptcies are the most common options.
Chapter 7 bankruptcy
Ideally, one seeks a Chapter 7 bankruptcy because, in this form of bankruptcy, one’s unsecured debts are, for the most part, entirely discharged. While every situation contains some complexities, People consider Chapter 7 as “debt elimination,” and the process is considerably shorter than Chapter 13.
Chapter 13 bankruptcy
If one does not qualify for a Chapter 7 bankruptcy though, Chapter 13 bankruptcy is an option. In this version, the court reorganizes debts the consumer pays over the course of a three- or five-year repayment plan. Generally, debtors only repay a portion of the total debt. Additionally, Chapter 13 allows individuals to protect their assets such as a vehicle from repossession or a home from foreclosure.
Chapter 11 bankruptcy
For many business owners, Chapter 11 bankruptcy is an option. In Chapter 11, business owners can reorganize debts and the financial structure of the organization itself. The goal is to put the business back in good financial footing to allow it to come out of bankruptcy ready to resume normal business operations.
In the past, many viewed filing bankruptcy as an admission of wrongdoing. Only those who made financial mistakes explored this option. In recent years, however, more people have come to the realization that the Bankruptcy Code exists to help those who find themselves facing overwhelming debt.
