Many people who are facing grave financial issues, often have doubts about bankruptcy. It is therefore important to clear all your doubts related to it. Here are some FAQs about bankruptcy:
What is Personal Bankruptcy?
Personal bankruptcy offers 2 options mostly for individuals and couples; under Chapter 7 and Chapter 13. Both cases are designed to help people who are unable to pay their debts and get a fresh start. However, both options operate differently and are suitable for people with varying economic needs.
What is The Difference between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 bankruptcy is an option available for people having relatively low income and a large number of unsecured debts (credit card and medical bills). In this case, most of the unsecured debt is eliminated. Post-discharge of debts, creditors and debt collectors can no longer make any attempt to collect any thus debts.
Chapter 13 bankruptcy is a solution for people with regular income but somehow have fallen behind on payments. People who do not qualify for Chapter 7 can opt for this. Debtors can keep all property and make monthly payments as per repayment plans to clear past dues over a 3-5 year period.
Can Bankruptcy be used to Stop Foreclosure?
In most cases, bankruptcy can be used as a mean to stop foreclosure. On filing for bankruptcy, an automatic stay is in place. This stay helps put a stop to any collection action including foreclosure, by creditors and debt collectors. Apart from this, type of bankruptcy, past due balance, available monthly income, etc. are factors which are considered to decide the time and monthly payments to catch up in Chapter 13 repayment plan.
Can Bankruptcy Help Stop Wage Garnishments?
As soon as the automatic stay is entered (filing of bankruptcy case), wage garnishment is stopped instantly. Depending on the type of bankruptcy and amount of debt, the obligation to pay may be eliminated entirely or the debt may be reduced to a manageable monthly repayment plan. It is a relief to know that garnishment is totally eliminated for most debts.
Can Bankruptcy help Stop Car Repossession?
Filing of bankruptcy case results in an automatic stay due to which all collection attempts including car repossession are frozen. Solutions are available depending on the value of the automobile, equity in the car, the amount owed by the debtor and other factors. The debtor could surrender the vehicle to get free of debt on the loan, or redeem the vehicle for the market value and catch up on past-due payments in case of a Chapter 13 repayment plan.
How Long Can a Bankruptcy Case Run?
The duration of a bankruptcy case depends on the complexity. Chapter 7 case is generally completed in a 4-5 month time frame, whereas a Chapter 13 case, where repayment of dues takes place requires 3-5 years. It can be completed sooner too, depending on the final payment and completion of a mandatory financial education course.
Can Bankruptcy Ruin my Credit?
Bankruptcy remains on your credit report for a period of 10 years. If you are considering bankruptcy, your bad credit is already in reports. In fact, bankruptcy can be a good way to rebuild your credit. Since bankruptcy results in the elimination of many past dues, as well as reduction and elimination of outstanding debts, it helps in giving you a fresh start. Any late payments on discharged accounts also carry less weight and are eventually eliminated from the credit report. People if after bankruptcy, begin managing their finances properly can start rebuilding their credit immediately and often end up qualifying for finances like home loans in 2 years!