The financial world can be a tricky place to navigate.
From understanding tax laws to knowing how to properly repair your credit score, you may be a little overwhelmed by all the ins and outs of your finances. But once you start to learn a little more, these things will start to become second nature.
One of the most important financial avenues to learn about is bankruptcy. This procedure has the misconception of being a quick way to eliminate all of your debts, but that could not be further from the truth. Bankruptcy will not only have a lasting effect on your finances, but it can destroy your credit score as well. There are several types of bankruptcy to claim, and once you understand each of them, you will have an easier time staying away from them. Here are the several forms of bankruptcy:
Understanding what bankruptcy isBankruptcy is the legal procedure of filing a claim saying you cannot pay back your debts. It may seem like a quick fix, but it will stay on your credit report for up to 10 years, which can greatly affect your credit score and how you apply for loans. This procedure is a last-ditch remedy, so you should consider all of your options before you go down this road.
Chapter 7With this form of bankruptcy, you will have all your assets estimated for their cash value, which will be used to pay back your debts. Those who are considering claiming this must meet the means test - income must be less than the state's median income.
Chapter 9 & 11These two types of bankruptcy are somewhat similar and allow you to reorganize your debt. Chapter 9 or Adjustment of Debts of a Municipality, allows a city, town or county to work around their debt, while Chapter 11 is designed for businesses and individuals.
Chapter 12Many forms of bankruptcy are geared to specific groups, and Chapter 12 is one of them. Family farmers or fishermen who receive regular income in these industries can file for this. During this process, you will be allowed to set up a repayment schedule for your loans, which usually lasts over three years.
Chapter 13Those who do not meet the requirements of the means test will then have to file Chapter 13. This is generally more common for individual consumers. A repayment plan, like chapter 12, will be set up to assist in paying back loans.
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