There are many reasons someone might choose to file for bankruptcy. Divorce, job loss, medical bills and student loans are a few. Bankruptcy is for people who have no reasonable hope of ever paying back all of their debt.
If bill collectors are calling and you are having trouble keeping up with the minimum payments on your credit cards, bankruptcy is a way to reach for a fresh start.
Chapter 7 bankruptcy is also known as liquidation bankruptcy. Assets get liquidated to pay off as much of your debt as possible. This type of bankruptcy allows you to eliminate unsecured debt like credit cards and medical bills. To qualify for Chapter 7 under federal law, you must pass an eligibility test based on a few factors, including the median income in your state.
If you do not pass the eligibility test for Chapter 7, Chapter 13 is an option to consider. While Chapter 7 focuses on liquidating your assets to pay off debts, Chapter 13 is about a reorganization of your debt. You make a plan to pay off your debts over three to five years. Once the court approves a bankruptcy plan, creditors must stop contacting you. This type of bankruptcy could work for you if you have a steady, reliable income that will allow you to stick to a plan.
Although the record of your bankruptcy will stay on your credit report for ten years, it is possible to get credit or buy a home with a recent bankruptcy.