Bankruptcy is a legal process that allows individuals or businesses struggling with debt to seek some financial relief. It is a court-led procedure that helps them find a way to start over by reducing their debts or by devising a plan to repay them. There are various types of bankruptcy as outlined by different chapters of the U.S. Bankruptcy Code, such as Chapter 7, which involves liquidation of assets, and Chapter 13, which involves repayment plan.
1. What are the different types of bankruptcy?
Bankruptcy is commonly categorized into Chapter 7, Chapter 11, and Chapter 13. Chapter 7 is known as liquidation bankruptcy where your assets might be sold off to pay off your debts. Chapter 11 is generally used by businesses to reorganize and repay their debts over time. Chapter 13 bankruptcy enables individuals with regular income to develop a plan to repay all or part of their debts.
2. How does bankruptcy affect your credit?
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Bankruptcy can severely impact your credit, making it difficult to get new credit, buy a home, or even find a job. While its effects lessen over time, a bankruptcy can stay on your credit report for 7-10 years, depending on the type of bankruptcy filed.
3. Can all debts be discharged in bankruptcy?
No, not all debts can be discharged in bankruptcy. Generally, student loans, child support, alimony, and certain tax debts cannot be discharged.
4. How can you rebuild your credit after bankruptcy?
Rebuilding your credit after bankruptcy takes time and patience. Some possible steps include budgeting effectively, starting to build up a savings, trying to make all of your payments on time, and applying for new credit to slowly rebuild your credit history.
5. What is the cost to file for bankruptcy?
The cost to file for bankruptcy can vary and generally includes court fees and attorney fees. On average, Chapter 7 bankruptcy costs about $338 for filing fees plus attorney fees, while Chapter 13 bankruptcy costs $313 for filing fees and a certain percentage of your debt repayment plan for your attorney.