Bankruptcy is a process that can allow people to eliminate their debt through a court-ordered process. There are two commonly used forms of bankruptcy:
- Chapter 7 bankruptcy: Also referred to as liquidation bankruptcy, a filer may have their non-exempt assets sold by a trustee to resolve debt with creditors. Liquidating non-exempt assets is rare for filers, however, as most Chapter 7 filers don’t earn enough income to own the kinds of assets that are subject to liquidation (such as luxury property).
- Chapter 13 bankruptcy: Many people struggle to pay off their debts but still have disposable income. When this happens, filers may use Chapter 13 bankruptcy to reorganize their debt obligations into manageable payments for three to five years. The remaining debt may then be discharged.
Although the benefits of bankruptcy are numerous, the process itself can be somewhat intimidating. This may be especially true you are unsure of whether or not you have a justifiable reason to file for bankruptcy. Below are two of the most common reasons why people seek bankruptcy protection.
Overwhelming credit card debt
Credit cards can make purchases easy. In essence, you make a purchase with a credit card now and spend the next few months paying off the purchase with added interest. As such, this resource can be very tempting for people who want to make large purchases but don’t want to have their savings impacted immediately (or who don’t have any savings). However, spending money that you don’t have can be a slippery slope, and people often spend much more than they can imagine paying off. They may need to file for bankruptcy to relieve the pressure on their finances.
Unfortunately, while people can seek medical emergency treatment and medicine immediately, it’s often at the cost of large amounts of medical debt. Many people find that they can’t pay off their medical bills. Filing for bankruptcy can result in the discharge of qualifying unsecured debts, including medical bills.
If you’re considering filing for bankruptcy, you should know that seeking legal guidance can make navigating this complex process far more efficient and effective.