Bankruptcy
A legal process to get out of debt when you can no longer make all your required payments
Bankruptcy is a legal process that is put in place to help individuals and businesses who are unable to pay off their outstanding debts. Bankruptcy is a last resort when all other means of repaying debts have been exhausted. There are different types of bankruptcy, but the most common ones are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy involves liquidating all the debtor’s non-exempt assets to pay off creditors. This type of bankruptcy is typically used by individuals and small businesses who are unable to pay their debts. Chapter 7 bankruptcy is the quickest and easiest type of bankruptcy, but it is also the most damaging to a debtor’s credit score.
Chapter 13 bankruptcy, on the other hand, allows debtors to keep their assets and pay off their debts through a repayment plan. This type of bankruptcy is available to individuals with regular income who can afford to make monthly payments to their creditors. Chapter 13 bankruptcy is a more complex process, but it is less damaging to a debtor’s credit score.
Bankruptcy should only be considered as a last resort, as it has long-term consequences. A bankruptcy filing stays on a debtor’s credit report for up to 10 years, making it difficult to obtain credit in the future. It is important to consult with a bankruptcy attorney and explore all other options before deciding to file for bankruptcy.
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